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And even if the plan permits a severed-from-employment participant to claim a distribution, does this plan in this participant's circumstances mandate an involuntary distribution?

Most of the pre-approved plans I have seen during the Cycle 3 restatements moved away from giving participants full discretion to designate the order of withdrawal from the available sources. There does remain a fair amount of flexibility with many offering a plan sponsor choice between pre-tax and Roth accounts as: pro-rata, pre-tax before Roth, or Roth before pre-tax. There also is the variability in the sources the plan sponsor wishes to make available for withdrawals. A common order of withdrawal is first to take rollover and voluntary after-tax, then elective deferrals to the extent they participant is eligible to do so, followed by employer sources (match or NEC). The thought process is first in line are accounts that are the employee's money so they should have access at will, then it is the employee's money but may be restricted because this after all is a retirement plan, and lastly it's the company's contribution for retirement and not a bonus plan. Most plans have been around for many years and often do not change this type of plan provision as the years and restatement cycles roll along. For new plans, the service provider is likely to push and get approval for their preferred approach.

Brian Gilmore, I was so grateful to see you response. I read many of your other posts and had fervently hoped you would respond to mine. I really appreciate it. Thanks for explaining the machinations of how Medicare interacts with COBRA in terms of the behind-the-scenes billing, etc. I am happy to report that I got a written response from Aetna that was clear and helpful. They said that I would need to submit a letter from the non-participating provider affirming their non-participation and listing some other information. That is a big relief. Thanks again for your input, Lena

In my view the only way to roll is: Each pay-period, run the following test on a YTD basis: (using 2025 limits) Have they exceeded $23,500? If yes, Do Roth deferrals = or exceed $7,500? If yes, deferrals = whatever the participant elected (may of course be 100% pre-tax, 50/50, etc) If not, Deferrals are 100% Roth (well at least until Roth is 7,500 YTD and then whatever the standing election is. [I will note that of course applying and reviewing calendar year-to-date limits is completely within the scope of their skill sets]. My "apply as a year-to-date limit calculation" method has a real nice side benefit: If the only reason someone's deferrals are "overridden" to Roth is based on this YTD Limit calculation (performed programmatically), their payroll deduction contributions will revert back to their standing election on the following 1/1, which in my view is an enormous consideration that is often not discussed (i.e., what happens on 1/1 after being reclassified). This is no different than someone electing $3,000 a pay-period 1/1, having their deferrals stop when the max is reached, and then resume the following 1/1 automatically as the standing election. I think this is a reasonable implementation of the fact that "catch-ups are the last contributions of the year." It just seems a bazaar interpretation that someone who contributed $23,500 of Roth in the first 9 months is barred from pre-tax for Q4 because of a literalist reading of the statute that disregards any sense of practicality. I think it is somewhat akin to capping the match at X% of the max comp amount, regardless of your YTD comp when the match is being funded. [edited for a reversal in my bullets]

It is a bit hard to justify that you can do almost anything to fix a mistake as opposed to doing a prospective amendment. Sometimes I have wished clients had not asked me a question, and just done it wrong, and then it would have been obvious that a plan amendment to accomplish the objective was available... but that is an important distinction here, EPCRS corrective amendments versus well thought and planned amendments.

No, for two reasons (1) the reason Mojo outlined above (including making sure the match formula is taking into account these early "catch-up" contributions even if the plan says it does not match catch-up) (2) is the employer going to look at every catch-up eligible employee every period (assuming employees may make deferral changes at any frequency) to determine when to prorate their deferrals? Maybe for a one person plan when this information is known, but this process is not repeatable for a company of any significant size.

In my mind, option 1 is very problematic for one very simple reason. Despite a participant making two elections (one for regular and one for catch-up) from the get-go, the amounts withheld pursuant to the catch-up election ARE NOT CATCH-UP CONTRIBUTIONS UNTIL A PLAN/REGULATORY LIMIT IS REACHED. Consider an employee who terminates mid-year, after the employer made a "tax-election" on behalf of the participant, without considering their entire tax situation, and then it turns out that the catch-up contributions are NOT catch-ups, because a limit wasn't reached. The employer just potentially cost the participant tax consequences unnecessarily, and "malpracticed" it at the same time. I'm a lawyer (but not a litigator) but if a large enough employer did that, then maybe had mass layoffs costing many people money, I'd brush up on my class-action litigation skills (or referral skills) rather quickly. As a recordkeeper, we hate all available options, but the single election with spillover seems less problematic. That said, my recordkeeping employer uses the dual election method (and when this becomes effective, it will impact me personally.) Frankly, I'm not going to be working long enough for the numbers of beginning Roth contributions to work, so my after-tax savings won't be in the plan.... I expect this will impact a number of those who are going to be subject to this rule....

Regarding door number 1, are you suggesting/asking the following?: a highly paid employee is expected to receive $300,000 in eligible pay in 2026 and has a 20% percent pre-tax deferral election on file. The employer will change the deferral election to be 2.5% Roth ($7,500/$300,000) and 17.5% pre-tax as of January 1, 2026? If my above interpretation is accurate, then I would choose door number 2 because door number 1 is a bad idea (in my view). Problems I see with option 1 are: correctly determining expected pay, termination before year end, ensuring the Roth portion is still matched even if the plan does not match catch-up, and not correctly processing a deferral election of 20% and deeming it before any dollars are required to become Roth. Door number 2 is preferred. I have spoken with many large employers (+1000 ee's) and for those who currently have a single deferral election process (i.e., spillover), they are going with the second option. For employers that currently use a separate/dual election process, it is a different story (but still not option 1).

A big thank you to Lois and the entire IT team (is that just Lois?) for cleaning up the site after the major spam attack over the weekend. Every board was littered with messages. These boards are very useful to many people and it doesn't happen without great support. Thank you to the entire clean up crew.