SECURE 2.0 60-63 CAtch-ups - Optional or Mandatory?

[austin3515]

I've seen conflicting things on this.  Is it 100% known yet whether or not this administrative horror show is mandatory or optional?

[justanotheradmin]

I would think optional since plans don't have to allow for catch-up in the first place?  But who knows. 

[Lou S.]

I thought if your plan allowed catchups it was mandatory but if your plan doesn't allow any catchup it was not. Do I recall that wrong?

[Belgarath]

I'm too lazy to look it up right now, but my memory agrees with Lou.

[C. B. Zeller]

I'm going to have to disagree.

1.414(v)-1(e)(1)(i) says (emphasis added):

Quote

Effective opportunity. An applicable employer plan that offers catch-up contributions and that is otherwise subject to section 401(a)(4) (including a plan that is subject to section 401(a)(4) pursuant to section 403(b)(12)) will not satisfy the requirements of section 401(a)(4) unless all catch-up eligible participants who participate under any applicable employer plan maintained by the employer are provided with an effective opportunity to make the same dollar amount of catch-up contributions. A plan fails to provide an effective opportunity to make catch-up contributions if it has an applicable limit (e.g., an employer-provided limit) that applies to a catch-up eligible participant and does not permit the participant to make elective deferrals in excess of that limit. An applicable employer plan does not fail to satisfy the universal availability requirement of this paragraph (e) solely because an employer-provided limit does not apply to all employees or different limits apply to different groups of employees under paragraph (b)(2)(i) of this section. However, a plan may not provide lower employer-provided limits for catch-up eligible participants.

This doesn't require that everyone be allowed make the maximum amount of catch-up permitted under the law, it only requires that the same limit be available to everyone.

So, I think you could ignore the 60-63 catch-ups and limit everyone to the regular catch-up limit.

[Belgarath]

Ah, well said. Serves me right for being too lazy to look it up this morning. Mea Culpa.

[Paul I]

As a further clarification to CBZeller's note that participants must have the same effective opportunity to make catch-up contributions, IRS 414(v)(2) says:

Quote

(2) Limitation on amount of additional deferrals
(A) In general

A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of—

(i) the applicable dollar amount

This language allows for a plan to limit catch-up contributions to an amount that is lower than the catch-up limit.

The Joint Committee on Taxatation General Explanation of section 109 of SECURE 2.0 says in part:

Quote

Explanation of Provision
Under the provision, the limit on catch-up contributions is increased for individuals who would attain age 60, 61, 62, or 63 (but who are not older than age 63), by the end of the taxable year. A section 401(k) plan ... may increase the limit on catch-up contributions for such individuals to the lesser of (1) the adjusted dollar amount or (2) the participant’s compensation for the year reduced by any other elective deferrals of the participant for the year.

This reinforces the idea that the SECURE 2.0 increased limits are themselves optional.

[austin3515]

This is all wonderful news.  I think probably 80% of my clients (i.e., the smaller ones) will not adopt this provision.  Wonderful sentiment, but execution is so incredibly infeasible.  And if you have less than 50 employees, you might have one person every 3 or 4 years eligible for this, and how many of them can actually contribute more than $30,000???  I just don't get it.  This is wonderful for IBM and Microsoft and Amazon, but down here in the weeds it's the last thing anyone wants to deal with.

[jsample]

I believe that it will provide an additional testing strategy for failed ADP test refunds for the employers who adopt it.  If the return is more than the catch -up limit available for the affected employee, see if they are ages 60 - 63 and possibly it will lessen, or eliminate, the return.  

[Belgarath]

That's an interesting point.

[RatherBeGolfing]

ASCs position (using their pre-approved C3 document) appears to be that unless further guidance provides an option to bifurcate regular catch-up and the 60-63 catch-up, the 60-63 catch-up is allowed if catch-up is allowed.

Anyone know if other major providers are taking a different approach with their pre-approved C3 document?
 

[jsample]

Although there may be some, I have not seen Relius come out with any SECURE 2.0 language for their documents.

[Peter Gulia]

austin3515’s query and RatherBeGolfing’s information suggest yet another awkwardness about administering a plan (on this point, starting as soon as January 1, 2025) according to one’s assumptions about the text of a document to be made years later.

Imagine austin3515’s client in 2025 and 2026 allows age 50 catch-up, but does not allow age 60-63 catch-up. Imagine the plan sponsor later finds that, in the IRS-preapproved documents set, the adoption agreement form’s only choice for catch-ups is both or neither. Imagine it’s then too late and impractical for austin3515 and the client to switch to a different vendor’s IRS-preapproved documents that allow a user to specify age 50 catch-up without age 60-63 catch-up. Imagine the plan sponsor signs document that provide both kinds of catch-ups.

Might someone say the plan’s administrator in 2025 and 2026 failed to administer the plan according to the remedially-amended written plan?

Or might someone say the plan’s operation was within the administrator’s reasonable assumption about what the remedially-amended plan would provide?

Or might someone say the provision for allowing both kinds of catch-ups is not retroactive?

How many legal fictions does the remedial-amendment regime call for?

[austin3515]

I just had a such a good idea. The IRS should provide guidance!!  Can someone please call them and make this suggestion?  Thanks in advance!!