SECURE 2.0 - Roth Catch-Up for HPEs - Correction

If an employee is an HPE and contributed maximum in deferrals (including catch up) for 2026 as a Pre-Tax contribution, would doing an In-Plan Roth conversion of the Catch Up portion work as the correction method? The catch up amount needs to be adjusted for earnings?

Thanks!

(1) did the plan have practices and procedures in place at the time the error was made? If not, the plan is not eligible to use the conversion correction method (2) this is not a normal in-plan conversion elected by the participant. This is a plan correction procedure instituted the sponsor. 

From the final regulations:

(i) Practices and procedures designed to avoid section 414(v)(7) violations—(A) In general. For a plan to be eligible to use either of the correction methods described under paragraph (c)(2) of this section with respect to an elective deferral that is a catch-up contribution because it exceeds a statutory limit described in § 1.414(v)–1(b)(1)(i), the plan sponsor or plan administrator must have in place practices and procedures designed to result in compliance with section 414(v)(7) at the time the elective deferral is made.

What would constitute practices and procedures in this case?

If they were in place, would earnings have to be calculated for the In-Plan Roth Conversion?

Thank you.

I have worked with clients who have documented the following, this is not an exhaustive list: (by documented I mean either wrote these answers in a word doc or excel file and shared them with the applicable individuals who are responsible for the tasks).

• determine if the plan will deem pretax to Roth
• When will the plan deem? when total deferrals reach 402(g) or just when pretax reach the 402(g) limit?
• who will control the deeming process, recordkeeper or payroll (usually payroll)
• how will the payroll system be updated/programmed to control the limits
• who is monitoring the payroll system to ensure it is working 
• how will employees be notified about deeming

What I think does not work is if the sponsor ignored how they are going to manage this. Letting payroll run as it always has, then expecting to convert the excess does not comply (IMO, and not implying that was the intent of your OP).

Yes, earnings/losses should be calculated in the conversion correction. 

2. A plan may correct a section 414(v)(7) failure by transferring the catch-up contribution (adjusted for earnings and losses in accordance with § 1.402(g)– 1(e)(5)) from the participant’s pre-tax account to the participant’s designated Roth account ...

Lastly, the final regs are effective 1/1/2027, the sponsor can make a good faith interpretation for 2026.