Is there any big recordkeeper not using a Roth catch-up indicator?

To help customers apply § 414(v)(7)’s constraint that a higher-wage participant’s age-based catch-up deferral must be Roth contributions, recordkeepers are asking an employer to deliver—in January, following W-2 files—a computer file that shows, yes-or-no or on-or-off, whether a participant had in the preceding year Social Security wages more than $150,000.

Everything I’ve heard so far suggests this is the mainstream method recordkeepers are doing.

Is there any big recordkeeper not doing this?

I am curious about why the industry doesn't view this as purely a payroll function. While an RK needs DOBs for various reasons and can use them to determine whether a participant's catch-up needs to be returned because they are not the proper age, there is no other reason to collect SS wages except for this new rule. Why can't this responsibility be put on payroll companies to ensure they do it properly? They have all the records.

Not every employer uses a contracted payroll service.

Of those that do, many have not contracted for a service of applying § 414(v)(7) particularly, or even applying deferral limits generally. Not every payroll service offers a service for applying deferral limits. Even fewer offer a service for § 414(v)(7).

Of employers that do payroll using software, often the software has nothing apply § 414(v)(7).

And even when a payroll manager can, whether with a contracted service or software, apply deferral limits generally and § 414(v)(7) particularly, some employers and plan administrators prefer deliberately redundant services.

For those and other business reasons, recordkeepers have built services for § 414(v)(7).

Is there any big recordkeeper not using a Roth catch-up indicator?

2 hours ago, Peter Gulia said:

Is there any big recordkeeper not using a Roth catch-up indicator?

Not that I am aware of. I think I have spoken with what I would consider all the "big" recordkeepers and they are all asking for an indicator file. 

2 hours ago, Gadgetfreak said:

Why can't this responsibility be put on payroll companies to ensure they do it properly?

From my perspective most RK's want the information for targeted communication campaigns. Whether that is messaging specifically placed on the employee portal, emails or letters. 

I think it is an unnecessary burden on the client/employer. The code should be set up on the payroll side. After all, the recordkeeper can only identify a mistake AFTER it happens. In my opinion, the payroll system should be programmed to handle this so an error does NOT occur. Yes, the RK can be a second line of defense (if the employer provides HPI data), but employers shouldn't need to do that if they don't want to.

While an employer/administrator might prefer that a payroll service apply § 414(v)(7), not every customer has the purchasing power to get that service. Nor does every software licensee have a practical capability to get that software addition.

Nothing compels an employer/administrator to furnish information to its recordkeeper. Rather, an employer/administrator gets an opportunity to identify the higher-wage participants.

Some recordkeepers can deal with a potential mistaken deferral before it happens. With the plan’s administrator’s instruction, a recordkeeper applies the plan’s deemed Roth-contribution election. When the system shows a participant’s year-to-date before-tax deferrals have exhausted her without-catch-up deferral limit, the recordkeeper puts the next amount in the Roth subaccount (if the participant did not opt out from the deemed election).

Also, many employers don’t initiate participant contribution amounts; an employer lets the recordkeeper tell the payroll manager the amount or amounts to take from a participant’s pay.

The concept of a recordkeeper requesting an indicator is separate from administering Roth catch-ups.  As the honorable WCC notes the recordkeepers want the indicator for targeted communications and also for monitoring after end of the year.  But I am not aware of any recordkeepers doing more than that- so in reality regardless of whether an indicator is shared with the recordkeeper payroll providers are effectively responsible for the administration.   

What if the client has a 360 or 180 payroll integration between their payroll company and the recordkeeper? I would think that the indicator could be placed in the file layout so when it goes to the record keeper it is updated.  They could also include prior year FICA wages in the file layout if the recordkeeper has the capability to track that somewhere.

also, how are fiscal year end plans being handled (for instance a 9/30/2025 PYE)??