SECURE 2.0 - Roth Catch-Up for HPEs - Payroll or TPA monitoring function?

My thoughts are that the primary responsibility for determining an HPE and remitting Roth Catch-Up for Highly Paid Employees is mostly a payroll function.

The TPA/Recordkeeper may be able to add processes and tools and communications to facilitate the proper administration, but ultimately the payroll companies will have to enhance their systems to accommodate this SECURE 2.0 provision.

I am curious to know where the 401k community lands on this process?

I tend to agree that this would be a function of payroll, especially given that the $145k prior earnings limit only applies if that employee worked for that company in the prior year.  The TPA/RK may be able to offer assistance but from a practical standpoint think there will need to be payroll controls and policies in place for this. 

The primary responsibility likely will be driven by circumstances.  For example, if the plan procedure is to allow a catch-up eligible HPE to make an election to defer x% and to make an election to defer up to the deferral limit or the deferral limit plus the catch-up, then this should be fairly straightforward for payroll to administer.

On other hand, if a catch-up eligible HPE elects to defer only up to the deferral limit and in the following year the TPA determines the plan fails the ADP test requiring a refund to the HPE, and the HPE wants the amount to stay in the plan as catch-up, then it is the TPA that will have the information needed to treat the catch-up as Roth.  Payroll will not know about this until well afterwards.  By then, the HPE's W-2 was prepared and filed with the IRS.  Further, the HPE may no longer be an employee when the amount of the catch-up/Roth calculation is known.  How will this be reported?

I'm sure there are other circumstances that could be complications. 

If the payroll procedure for an HPE is to keep an election for elective deferrals separate from an election for catch-up contributions, then it would seem logical that payroll would treat the catch-up amounts as Roth.  If the HPE terminates before reaching a plan limit triggering the availability of catch-up contributions, then the question would need to be addressed if payroll's treatment was consistent with the plan provisions.

Can't wait for some IRS guidance to be released.  One third of this year has passed and the clock is ticking!

Interested to know how to handle a situation where a HPE elects to make Roth contributions the first part of the year and then updates their withholding to pre-tax deferrals for the remainder of the year. If the participant first contributes Roth in excess of the catch-up dollar limit would you allow the HPE to continue for the remainder of the year with pre-tax contributions up to and exceeding the standard limit because they have already contributed more than the catch-up $ limit, or once the standard limit was met would you require them to switch back to Roth? 

Like for many other scenarios, we don't yet have guidance.  My take on this situation is the HEP will be in compliance with the new rule if, after the end of the plan year and after compliance testing is done, then any amount that the HEP contributed during that is above the 402(g) limit (or a plan limit) needs to be Roth.  Another way to put this is "it won't matter how you get there, as long as you get there." 

Taking this approach would let the IRS punt on what payroll, the participant, the recordkeeper, or the plan sponsor needs to do to get to that result.