About a higher-wage participant’s age-based catch-up, what is an effective opportunity to elect against Roth contributions?

About a higher-wage participant’s age-based catch-up, what is an effective opportunity to elect against Roth contributions?

For Internal Revenue Code provisions about a higher-wage participant who must make age-based catch-up deferrals as Roth contribution (or get no such catch-up), a proposed rule lets a plan provide a deemed election for Roth contributions. Among other conditions, the plan must provide a § 414(v)(7)-affected participant an “effective opportunity” to make a different election.

About what is or isn’t an effective opportunity, the proposed rule points to 26 C.F.R. § 1.401(k)-1(e)(2)(ii): “Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including the adequacy of notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections.”

For the audience we seek to reach (age 49 or older, 2025 FICA wages > $150,000) and the choice the election asks, what facts do you think makes an effective opportunity?

For a small plan with not many § 414(v)(7)-affected participants, one might give this notice with lots of “touch” and without needing a heavily programmed plan-administration regime.

But imagine a plan with at least a thousand § 414(v)(7)-affected participants, who specified all deferrals as non-Roth contributions, and didn’t respond before 2026 to 2025’s communications imploring them to make revised deferral elections.

When would you send such a participant a notice of the employer/administrator’s intent to treat a non-Roth election as a Roth election (absent an election for no catch-up deferral)?

In setting a time for a notice, must it relate to when within the year the particular participant would be switched from non-Roth to Roth? Or is a notice given in December 2025 good enough?

Recognize that for some a needed switch from non-Roth to Roth might be as late as summer, and for some it might be as soon as January.

What makes sense?

Since there is no new disclosure required for employees affected by the High Paid Roth Catch-Up, it could be inferred that - from a regulatory perspective - existing disclosures are sufficient to provide an effective opportunity to elect against Roth contributions.  A large number of plans already have an obligation to send out notices to participants in the 30-to-90 day window before the start of the new plan year for things like fund disclosures, QDIAs, safe harbors... and the plan's Roth rules can be added to the group.  This does not answer the question makes sense.

The plan sponsor most likely will decide how Roth elections will be collected for payroll to have the information necessary to apply the elections to the participants' first paychecks of the year.  The plan's design and administrative procedures will need to spell out how and when elections can be made so payroll will know what they have to do.

What makes sense is whatever payroll needs to have available to be ready to take the correct type and amount of elective deferrals.

Paul I, thanks.

Assume the paymaster is ready to switch a nonresponsive participant's paycheck deferrals from non-Roth to Roth. Imagine that won't need to happen until 2026's summer. Is a notice given in December 2025 good enough? Or might the IRS assert that the participant lacks an "effective opportunity" because by summer she's forgotten the notice she received last December?

Any thoughts on a scenario where the HPI has no regular catch-up, but when ADP testing is performed, a portion is recharacterized as catch-up if that person also happens to be HCE. 

If an election is made as much as 18 months prior perhaps in January, and the participant elects no -Roth catchup, it would seem to follow that the participant would received a distribution to correct the failing test. Somehow this feels wrong to me, that a participant's election would impact the corrective action on a test, but I can't think of an alternative. 

I think it might also create scenarios where some HCE get refunds (elected no roth) and others just have their money recharacterized (yes made a roth election, or plan's default is yes Roth). 

When performing testing, each HCE's election will need to be known if they happen to also be HPI and age 50 or older. 

I haven't given this a lot of thought, so I'm sure there are nuances I'm missing.