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While an employer/administrator might prefer that a payroll service apply § 414(v)(7), not every customer has the purchasing power to get that service. Nor does every software licensee have a practical capability to get that software addition. Nothing compels an employer/administrator to furnish information to its recordkeeper. Rather, an employer/administrator gets an opportunity to identify the higher-wage participants. Some recordkeepers can deal with a potential mistaken deferral before it happens. With the plan’s administrator’s instruction, a recordkeeper applies the plan’s deemed Roth-contribution election. When the system shows a participant’s year-to-date before-tax deferrals have exhausted her without-catch-up deferral limit, the recordkeeper puts the next amount in the Roth subaccount (if the participant did not opt out from the deemed election). Also, many employers don’t initiate participant contribution amounts; an employer lets the recordkeeper tell the payroll manager the amount or amounts to take from a participant’s pay.

I think it is an unnecessary burden on the client/employer. The code should be set up on the payroll side. After all, the recordkeeper can only identify a mistake AFTER it happens. In my opinion, the payroll system should be programmed to handle this so an error does NOT occur. Yes, the RK can be a second line of defense (if the employer provides HPI data), but employers shouldn't need to do that if they don't want to.

What does the recordkeeper’s service agreement provide? How, if at all, does the recordkeeper adjust its records if the contribution arrives much later than the expected pay date? How, if at all, does the recordkeeper adjust its records if the contribution never arrives? If the date a contribution is posted is sooner than the date the contribution purchases mutual fund shares or collective investment trust units, how would a participant check whether her account balance is correctly determined? If a contribution is invested before the trustee or custodian or its agent has money from the employer, is the service provider’s loan sufficiently documented to meet the prohibited-transaction exemption? Could the posted dates affect in which plan year a trustee or custodian reports and certifies a contribution amount? Could the posted dates affect in which limitation year the plan’s administrator assumes an amount is an annual addition? Did the plan’s administrator accept the recordkeeper’s service agreement without reading it?

Not that I am aware of. I think I have spoken with what I would consider all the "big" recordkeepers and they are all asking for an indicator file. From my perspective most RK's want the information for targeted communication campaigns. Whether that is messaging specifically placed on the employee portal, emails or letters.

After-tax are subject to the overall 415(c) limit. In order to exceed that, you would need to use catch-up deferrals (which are not subject to 415(c)). Out of curiosity, from a plan design standpoint, if these are owner-only plans with no discrimination concerns, what is the benefit of making these as after-tax contributions in the first place? Why not just max out everything (with deferrals and employer discretionary contributions) on a pretax basis and then do a Roth conversion each year? Or use the new SECURE 2.0 rules to have them contributed on a Roth basis in the first place?

Our firm has a lot of owner only so we tend to have alot of mega Roth conversions. I can't seem to find a definitive answer on what the limit is when the plan is ONLY doing after tax -> Roth. I've read alot of places that if you are 50 and over, then the limit is $77,500 for 2025 but the examples always include deferrals/Roth. What about when it's solely after tax? I read an AI response that said if it's only after tax, then the limit is just $70,000 because after tax is not subject to 402(g): Elective deferrals = pre-tax 401(k) deferrals + Roth 401(k) deferrals (salary-reduction contributions subject to the 402(g) limit). After-tax (non-Roth) contributions = a different bucket under §415(c), not subject to 402(g), and not elective deferrals. Thanks!

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A 401(k) participant requested a hardship under 1.401(k)-1(d)(3)(ii)(B)(6), relating to the "repair" of the participant's principal residence, for costs associated with the removal of a tree that posed a danger of falling on the participant's residence (but had not actually fallen yet). From a practical, policy perspective, I understand that it makes sense for the participant to take the tree down before it actually falls on the house. However, I don't think this would qualify as a casualty loss under 165, and therefore wouldn't qualify as a "repair" eligible for hardship. (See, e.g., Rev. Rul. 76-134.) Do you all agree? Other thoughts? (As an aside, I realize that SECURE 2.0 permits self-certification, but in this case the participant volunteered the information, so the plan sponsor has actual knowledge.)

Is there a particular advantage to signing a new Cash Balance Plan for the current plan year by end of the plan year, typically 12/31. Or is it just as well to wait until prior to the tax filing deadline of the next year and signing retroactively?

Found a r/k who posts deferral transactions before the check date. Basically, they process the contribution file when it comes in. For example, they processed the 5/9/25 payroll on 5/8. I didn't think they could/should do that, but they said it was ok. Do you agree?

Not every employer uses a contracted payroll service. Of those that do, many have not contracted for a service of applying § 414(v)(7) particularly, or even applying deferral limits generally. Not every payroll service offers a service for applying deferral limits. Even fewer offer a service for § 414(v)(7). Of employers that do payroll using software, often the software has nothing apply § 414(v)(7). And even when a payroll manager can, whether with a contracted service or software, apply deferral limits generally and § 414(v)(7) particularly, some employers and plan administrators prefer deliberately redundant services. For those and other business reasons, recordkeepers have built services for § 414(v)(7). Is there any big recordkeeper not using a Roth catch-up indicator?

I am curious about why the industry doesn't view this as purely a payroll function. While an RK needs DOBs for various reasons and can use them to determine whether a participant's catch-up needs to be returned because they are not the proper age, there is no other reason to collect SS wages except for this new rule. Why can't this responsibility be put on payroll companies to ensure they do it properly? They have all the records.

Thanks JAA :^) For some reason, I was under the impression that the catch-up limit was Plan-specific (aka a person could have infinite catch-up limits being in infinite Plans). It makes a lot more sense that it is an individual limit - thanks for pointing me to actually read the regs.

To help customers apply § 414(v)(7)’s constraint that a higher-wage participant’s age-based catch-up deferral must be Roth contributions, recordkeepers are asking an employer to deliver—in January, following W-2 files—a computer file that shows, yes-or-no or on-or-off, whether a participant had in the preceding year Social Security wages more than $150,000. Everything I’ve heard so far suggests this is the mainstream method recordkeepers are doing. Is there any big recordkeeper not doing this?

I think the ASG question needs to be answered first. If there is one - the combined limits are only pro-rated under SECURE 2.0 if the SIMPLE is terminated and a replacement 401(k) is immediately put in place, and all the requirements are met. Which doesn't sound like occurred. So trying to determine deferral limits for this scenario is outside the scope of the language in SECURE 2.0, and you need to look to EPCRS for what to do when there is both a SIMPLE IRA program and a 401(k) plan in the same year by the same employer. When there is a SECURE 2.0 compliant SIMPLE term + replacement 401(k) the pro-rated limits are just math, based on the days and portion of the year each one was in place. If you want some examples of how the math works, I think ERISApedia had a webinar that covered that last year, as did several other providers, if my memory serves. The combined prorated 402(g) limit is specific to that single employer, for those two (SIMPLE + 401k) combined. Not the participant. If the combined prorated limit is $22,000 and the employee maximized those, and also works someplace unrelated with a 401(k) plan, they can defer the difference up to the annual regular 401(k) limit. Their personal 402(g) limit is not the same as what the employer's has to apply. If there isn't an ASG - then company B is just starting a new 401(k) plan. And the short rules for pro-rating limits, whatever they are in that plan's legal document, will apply. The existence of a SIMPLE sponsored by an unrelated entity is immaterial to the analysis. Perhaps the question you are trying to ask is more "if a person participates in both a SIMPLE and 401(k) from two unrelated employers, how is their personal deferral limit impacted?" not as detailed as you might need, but here is a starting point for additional reading https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

Thank JAA. Agreed on the ASG item - hopefully the Plan Sponsor is answering correctly. I understand that generally the 402(g) limit is a personal limit, but indications are that this is a weird mix of the Plan having a separate deferral limit imposed in this scenario. Since this is a SECURE 2.0 item, the document doesn't reflect any information about this scenario because it wasn't a possible scenario prior to SECURE 2.0. From IRS Notice 2024-02 "Section 332(a) of the SECURE 2.0 Act amended section 408(p) of the Code by adding paragraph (11). Section 408(p)(11)(A) permits an employer to elect (in such form and manner as the Secretary may prescribe), at any time during a year, to terminate the qualified salary reduction arrangement under a SIMPLE IRA plan if the employer establishes and maintains a safe harbor section 401(k) plan to replace the terminated arrangement. Section 408(p)(11)(B) provides a combined limit on the total of the salary reduction contributions under the terminated arrangement and elective contributions under the safe harbor section 401(k) plan for the transition year described in section 408(p)(11)(C) (that is, the period beginning after the termination date and ending on the last day of the calendar year during which the termination occurs). Under this limit, the total of those contributions must not exceed the time-weighted average of the limits that apply, on a full year basis, to a SIMPLE IRA plan (after the application of the catch-up provisions of section 414(v)) and a section 401(k) plan. " Secure 2.0 Text: The terminated arrangement and safe harbor plan shall both be treated as violating the requirements of paragraph (2)(A)(ii) or section 401(a)(30) (whichever is applicable) if the aggregate elective contributions of the employee under the terminated arrangement during its last plan year and under the safe harbor plan during its transition year exceed the sum of— ‘‘(i) the applicable dollar amount for such arrangement (determined on a full- year basis) under this subsection (after the application of section 414(v)) with respect to the employee for such last plan year multiplied by a fraction equal to the number of days in such plan year divided by 365, and ‘‘(ii) the applicable dollar amount (as so determined) under section 402(g)(1) for such safe harbor plan on such elective contributions during the transition year multiplied by a fraction equal to the number of days in such transition year divided by 365.

I've run into the same situation a few times. In each case, it's been the incoming executive director of a smallish non-profit, but maybe that's just me. I typically recommend they (1) increase the executive's base salary by the premium amount the employer otherwise would have subsidized, (2) uncouple it from the lack of health plan participation, (3) offer the executive the employer's health insurance on the same terms as other employees, and (4) know that the executive can, but likely will not, enroll in the health plan if she chooses on the same terms as all other employees. Not a huge sample size, but it's never become a problem in my experience. (I realize it could, but there also could be other ways to solve that indirectly in the future.)

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It's likely a violation of the Section 125 cafeteria plan nondiscrimination rules (particularly the "uniform election" component of the contributions and benefits test) that could result in the loss of the safe harbor from constructive receipt for HCPs if discovered by the IRS. In this case, that would generally mean the HCPs would have taxable income in the amount of the available opt-out credit regardless of whether they received it. They might also lose the pre-tax treatment overall for all cafeteria plan contributions by having the amount of the available taxable cash (i.e., regular wages/salary) included in taxable income even if they elected the health plan. More details: https://www.newfront.com/blog/designing-health-plans-with-different-strategies Prop. Treas. Reg. §1.125-7: (2) Benefit availability and benefit election. A cafeteria plan does not discriminate with respect to contributions and benefits if either qualified benefits and total benefits, or employer contributions allocable to statutory nontaxable benefits and employer contributions allocable to total benefits, do not discriminate in favor of highly compensated participants. A cafeteria plan must satisfy this paragraph (c) with respect to both benefit availability and benefit utilization. Thus, a plan must give each similarly situated participant a uniform opportunity to elect qualified benefits, and the actual election of qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect permitted taxable benefits)…A plan must also give each similarly situated participant a uniform election with respect to employer contributions, and the actual election with respect to employer contributions for qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect to receive employer contributions as permitted taxable benefits). ... (2) Similarly situated. In determining which participants are similarly situated, reasonable differences in plan benefits may be taken into account (for example, variations in plan benefits offered to employees working in different geographical locations or to employees with family coverage versus employee-only coverage). ... (2) Discriminatory cafeteria plan. A highly compensated participant or key employee participating in a discriminatory cafeteria plan must include in gross income (in the participant’s taxable year within which ends the plan year with respect to which an election was or could have been made) the value of the taxable benefit with the greatest value that the employee could have elected to receive, even if the employee elects to receive only the nontaxable. Slide summary: Newfront Office Hours Webinar: Section 125 Cafeteria Plans

I can imagine at least two ways the IRS might unravel the opt-out offer: If the opt-out offer is not expressed in a written plan, it can’t be a cafeteria plan. I.R.C. § 125(d)(1). If the opt-out offer is expressed in a written plan but offered only to one offeree who is highly-compensated, how would that plan “not discriminate in favor of highly compensated participants”? I.R.C. § 125(c). If the opt-out offer is no cafeteria plan at all or is a plan that discriminates, the highly-compensated offeree gets no § 125(a) exclusion for whatever results from having a choice between money wages and health coverage. The employer might want an IRS-recognized practitioner’s advice about reporting wages for Federal income tax and for Social Security and Medicare taxes. The individual might want advice to help her file an accurate tax return. For questions about professional conduct, one might look to a BenefitsLink discussion in which Chaz gave us an intriguing thought. https://benefitslink.com/boards/topic/73510-health-fsa-and-hsa-how-does-irs-know/#comment-344822 This is not advice to anyone.

The opt-out compensation is only offered to the one HCE. And, yes, the HCE gets the amount solely because the HCE opted out and the payment is contingent on opting out. Peter's other questions are all good ones but I am just looking for the consequences to the HCE under the cafeteria plan rules for participating in this arrangement.

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Good question. The guidance is pretty clear that you can make HSA contributions (up to the applicable proportional limit) after losing HSA eligibility for the year (until 4/15 of the prior year). It's always been a bit of a mystery to me whether contributions made prior to becoming HSA-eligible in the year are valid. My feeling is it is probably technically considered an ineligible excess contribution, but I'd consult with a personal tax adviser given it's a gray area. It does seem like an unnecessary hassle to take a corrective distribution of 1/12 only to make that contribution back, but again in theory that's probably technically correct.

Thank you.

@Peter Gulia This is a creative approach worth exploring.