HPI who already made catchup as pre tax 401k

Okay.  Anyone else experiencing plan sponsors who didn't pay attention to guidance re their HPI's for 2026 contributions?

Two situations:

1.  Active HPI employee maxed their 401(k) already: Assuming their catchup amount will be converted as an in plan Roth rollover and 1099-R will be issued.

2. Terminated HPI employee maxed their 401(k) already and still has their balance in the plan: We can also do an in plan Roth rollover, but it seems that we can distribute it as a Roth distribution. Intent if distributed is to do so by end of year. I'm wondering if the plan can authorize this distribution as a fix, even when the terminee has not requested a distribution?

12 hours ago, TPApril said:

1.  Active HPI employee maxed their 401(k) already: Assuming their catchup amount will be converted as an in plan Roth rollover and 1099-R will be issued.

Agree, this is one of the two new corrections methods

12 hours ago, TPApril said:

2. Terminated HPI employee maxed their 401(k) already and still has their balance in the plan: We can also do an in plan Roth rollover, but it seems that we can distribute it as a Roth distribution. Intent if distributed is to do so by end of year. I'm wondering if the plan can authorize this distribution as a fix, even when the terminee has not requested a distribution?

IMO - No, you can't fix this by processing a distribution from pretax to Roth and paying the cash to the participant.

The final regulations say the same correction method must be applied to similarly situated employees. In this case, these two are similarly situated.  https://www.irs.gov/irb/2025-40_IRB

A plan may provide for either of the correction methods described in paragraphs (c)(2)(ii) and (iii) of this section, but must apply the same correction method for similarly situated participants, and the selection of which correction method applies may not be based on the investment returns earned in participants’ accounts.

Lastly, in order to use the new correction methods, the plan should have policies and procedures in place to avoid the error to begin with. I'm not implying this plan doesn't, just adding if it is helpful for others. https://www.irs.gov/irb/2025-40_IRB

Under proposed §1.414(v)-2(c)(3)(i), a plan would be eligible to use the Form W-2 or in-plan Roth rollover correction method with respect to pre-tax elective deferrals that exceed a statutory limit described in §1.414(v)-1(b)(1)(i) (such as contributions that exceed the section 401(a)(30) limit or that result in the participant’s annual additions exceeding the section 415(c) limit) only if the plan sponsor or plan administrator has in place practices and procedures designed to result in compliance with section 414(v)(7) at the time an elective deferral is made.