WCC

Yes, for catch-up eligible participants with FICA wages in excess of $150,000

https://www.irs.gov/pub/irs-drop/n-25-67.pdf The Roth catch-up wage threshold for 2025, which under section 414(v)(7)(A) is used to determine whether an individual’s catch-up contributions to an applicable employer plan (other than a plan described in section 408(k) or (p)) for 2026 must be designated as Roth contributions, is increased from $145,000 to $150,000

Interesting question, thanks for sharing. I just have thoughts for discussion and no direct answer that I can back up. The plan document will need to be amended to say contributions will be deemed from pre-tax to Roth. Therefore, if the terms of the document are not followed, then I would assume an operational failure occurs. In this case, the employee was not told pre-tax elections would be deemed. So my thoughts are either (1) the terms of the document are followed meaning deeming happens now and the participant agrees to the deeming since they not told timely or (2) the plan administrator returns their ineligible catch-up if the employee opts out of deeming now. There is no missed deferral opportunity because the employee reached 402(g) with only pre-tax dollars. So even if they were given a notice about deeming, the only choice they had is to opt out of deeming. They could not have increased their deferral rate to receive more pre-tax dollars. I don't see where a QNEC would be owed in this case because there is no missed opportunity.

My interpretation is as follows: since this is a plan that uses separate elections, presumably the "catch-up" source is capped at the catch up limit $7,500 (2025). I understand what justanotheradmin says about when a catch-up is technically a catch-up. This has always been a problem with separate election plans (e.g. plans that don't match catch-up so they incorrectly don't take into account deferrals made under the "catch-up" election). But if you have and will take the position the "catch-up" is a catch-up, then I don't see why it would revert back to pre-tax catch-up once the catch-up limit is reached. I think the effective opportunity language in the final regs say they can make a different election anytime. Since you are deeming them on the first pay period, they can opt-out or choose pre-tax catch-up since they are also contributing "regular" Roth. How you will actually do this automatically on a large scale is yet to be seen. they need to have an effective opportunity to opt out. So presumably they have the choice on the 12 pay period to continue having 10% PT and 10% Roth withheld. Ideally payroll would make the calculation change when pre-tax reaches 401(a)(30), not when the total deferrals reach 401(a)(30). But if payroll can't do that, then it will likely need to be a manual process. Yes, because the limits start over in 2027 and deeming now looks at the 2027 plan year. They would then contribute 10% as pre-tax and 10% as Roth until you deem again in 2027. This assumes there is no deferral election activity in between.

Suppose a controlled group has two 401k plans - A and B. The decision makers told both plans not to add super catch-ups. Plan B ignored the direction and added super catch-ups. For sake of argument, decision makers refuse to add super catch-ups to plan A. How does one fix a universal availability failure? Does plan B have to be amended retroactively to remove super catch-up and therefore remove/distribute any super catch-up deferrals? Or is plan A forced to add super catch-ups? Thanks

I don't think the example you posted uses the word "first", it just say's "up to". The below paragraph from the preamble to the 415 regs is what I have relied on when this question comes up. You are not required to count compensation on a FIFO type accounting basis. (unless your document says so) https://www.federalregister.gov/d/E7-5750/p-111 "As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415(c)(3). However, in applying these two rules, a plan is not required to determine a participant's compensation on the basis of the earliest payments of compensation during a year."

Yes Yes

I have a question about the timing of loan re-amortization to avoid default. I have reviewed Notice 2023-43, but would like to ask for thoughts. Participant took a loan with a term of 3 years. Employer failed to start loan payments and the employee missed the first 4 payments. The employer found the error and began payments on the 5th scheduled payment. The plan uses the cure period so the loan is not at risk of defaulting assuming all future loan payments are paid timely. However, the employee and employer would like to bring the loan current, but the employee does not want to make a lump sum payment of 4 payments. The idea is to re-amortize the loan keeping it within the 3 year original payoff date and increase the payment amount slightly to still pay off at the original due date. Do you see a problem with re-amortizing before the loan is in default? EPCRS talks about refinancing after default, but is there a reason why you can't refinance before default? I am getting a lot of push back from the TPA that re-amortization cannot be done unless the loan is in default (we don't want to miss payments on purpose, just to get into default so we can refinance). Thanks

I have never seen an indicator like that, but I imagine they could build one if needed. But I would argue it is not needed if the context of your question is solely regarding the mandatory Roth catch-up provisions. All the recordkeepers I have spoken with have indicated they will build a new code which flags the required Roth catch-up individuals. The employer is responsible to provide a list to the recordkeeper of participants who earned in excess of $145k (indexed) in FICA wages. Therefore, a partner should not be on that upload list if she did not earn +$145k in FICA wages, eliminating the need for any sort of cross check. I don't think this should be happening, there is no need to look at total wages for a suggestion of who may be over the FICA wage limit. The employer should go straight to the source, find actual FICA wages and provide that list to the recordkeeper and payroll provider (unless the payroll provider can figure that out on their own).

Yes No From the Proposed Regs: The proposed regulations would not require an applicable employer plan to include a qualified Roth contribution program. Thus, under the proposed regulations, an applicable employer plan that does not have a qualified Roth contribution program would be allowed to permit catch-up eligible participants who are not subject to the Roth catch-up requirement to make catch-up contributions even though catch-up eligible participants who are subject to the Roth catch-up requirement would not be permitted to make catch-up contributions. From the JCS 1-23 page 527 In addition, if catch-up contributions are provided under a plan as designated Roth contributions for participants whose wages exceed $145,000, the plan must also permit catch-up contributions made by other eligible participants to be designated Roth contributions.

See Notice 2016-16 D. Prohibited Mid-Year Changes #3. Answer is no, you can't do this.

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.

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).

This is addressed in Rev Proc 2021-30 under the "missed deferral opportunity"/"failure to implement an employee election". The employer must fund the total match the employee would have received had the correct deferral election been applied timely. In other words, if the employee elected to defer 6%, the match is based on a 6% deferral election, not the QNEC amount for the missed deferral.

No, Dan is referring to the Cycle 3 restatement due July 31, 2022, this did not incorporate Secure 1.0 or 2.0

Did you complete a 401k deferral election form indicating your request to have the funds withheld from your pay and deposited into the 401k? This is usually a different process than the election to defer health insurance. Check your paystubs, is $4.50 being withheld from your pay? If so, then the employer must deposit your deferrals into your account generally as soon as possible, in many cases that means 2 - 7 days (I won't go into timing details here). If you made a deferral election and your funds are not being deposited, then I would suggest you go back to your employer, show your paystubs and ask where your money is.

Does SECURE 2.0 Mandatory Roth Catch-up Section 603 apply to the 403(b) special 15 year of service catch-up rules? I have not read anything that says it doesn't, but haven't specifically seen or heard anything that says it does. Any reason why the new rules would not apply to the special 15 year catch-up? edit: confirmed Section 603 only applies to age based catch-up. Thanks

that's for improperly excluded employees. OP states this is a failure to implement an employee elective deferral which is defined in .05(10)

Thanks Paul! Your comment made me think more about my response. I have always interpreted EPCRS (maybe incorrectly) that "elective deferrals" meant pre-tax and Roth. If this does not mean Roth, then I am curious how everyone else is correcting missed Roth deferrals? Are other practitioners following some other correction method? Thanks, curious what everyone else is doing. Page 93 Rev Proc 2021-30: (10) Employee Elective Deferral Failure. For purposes of sections .05(8) and .05(9), an “Employee Elective Deferral Failure” is a failure to implement elective deferrals [emphasis mine] correctly in a § 401(k) plan or § 403(b) Plan, including elective deferrals pursuant to an affirmative election or pursuant to an automatic contribution feature under a § 401(k) plan or § 403(b) Plan, and a failure to afford an employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan. Automatic contribution features include automatic enrollment and automatic escalation features (including automatic escalation features that were affirmatively elected).

The 40% correction you reference is the correction for missed employee/after-tax contributions, not Roth. Missed Roth contributions will follow either the 0%, 25% or 50% QNEC correction method depending on amount of time of the failure and the timing of the correction (or you could go straight to 50% regardless of the lower priced options). The correction would not be funded to the Roth source, it would be a pre-tax QNEC. One idea for 2025, since you said the employer wants to do more, give the employee a bonus (not contingent on it being deferred) and let the employee make a choice if she wants to make a Roth deferral from the bonus, assuming the plan allows for deferral of bonus. I think it is too late to do anything about the 2024 W2. Be careful with being more creative than EPCRS allows, a more generous correction could be considered a contribution, not a correction.

Are the following three assumptions accurate (1) the plan document is written with a pay period match formula (no true up) (2) the document is written to not match catch up contributions (catch up being defined under 414(v)) (3) the document is not written to say something to the effect of... "deferral amounts attributable to the election entered under the "catch up election box" are not matched"? If so, my thoughts are as follows" How is the deferral form written? Does it say your deferral election under this election stops when the catch up limit is reached? besides that, I don't have a great answer If the assumptions above are correct, then I think you likely have a problem. Let's say your match formula is 100% on 6%. Your pay period match formula should be set up as follows: match = ((the lesser of ("regular deferral" % + "catch up" deferral %) or 6%)*capped eligible wages)) with match capped at $20,700 for 2024. The dollars contributed under the "catch up election" are not catch up dollars until they are and should be matched until they become catch up. Just because they are made under a "catch up" election doesn't make them catch up. If the match formula is set up to not include the catch up election, then you may get lucky on some participants who are still correct. For example, if the participant had a 6% "regular" election and a 4% "catch up" election, then the match will be calculated correctly for that pay period even though the formula is wrong. But if someone has a 4% "regular" election and a 2% "catch up" election, then the match is short (until the catch up actually becomes a catch up). Side note - I am not a fan of dual elections for these reasons. I think it is much easier to manage one election and monitor the limits via payroll. Especially with 1.1.2026 changes.

A 401k plan allows for voluntary employee contributions (i.e. after-tax) and the plan matches voluntary employee contributions. Are there any regulations that would stop an employee from making voluntary employee contributions, receiving the match, then taking a withdrawal of the voluntary employee contributions the next day? Essentially a strategy of obtaining the match then getting their contribution back immediately. I understand the document would have to allow it and ACP testing needs to be passed, but is there a regulation that say's this cannot be done? Thanks

The auditors we work with look at every period on a spreadsheet to determine the number of days it took for each withholding to be deposited. If they determine the company can reasonably make the deposit within say 3 days, then that is the standard for that company. No, nor should they.

Here is a recent chat that may help.

Just trying to learn here for my own knowledge, but is this above statement correct? IRS notice Q&A-8 of Notice 2013-74 talks about the 5-year clock, but does this mean it starts over with every conversion? I was under the impression there was only one 5 year clock per participant in the plan, but maybe I am wrong. I could not find anything directly on point in the EOB. If someone were converting after-tax to Roth immediately every period, or converting PS dollars every year to Roth, they would have a new 5-year clock with every conversion? Curious of your thoughts.