On January 10, 2025, the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) issued proposed regulations that significantly impact defined contribution (DC) plans that permit catch-up contributions, reflecting the changes under sections 109 and 603 of the SECURE 2.0 Act of 2022 (SECURE 2.0). This Benefits Alert covers the key provisions impacting employer-sponsored 401(k) plans, 403(b) plans, and governmental 457(b) plans.

SECURE 2.0 catch-up contribution changes

Catch-up contributions, permissible since 2002, allow individuals age 50 or older to contribute additional elective deferral contributions to their employer-sponsored retirement savings plans above the standard IRS limits. Plans are not required to offer catch-up contributions, but if they do, they generally must be made available to all participants eligible for catch-up contributions and at the same dollar amount.

• Super catch-up contributions. Section 109 of SECURE 2.0 permits higher catch-up contribution amounts (super catch-up contributions) for participants who attain age 60, 61, 62, or 63 in the taxable year, starting in 2025. The 2025 IRS limit for super catch-up contributions is $11,250, while the standard catch-up limit is $7,500.
• Mandatory Roth catch-up contributions for certain high earners. Section 603 of SECURE 2.0 requires that any catch-up contributions made by certain catch-up-eligible high earners must be made as Roth contributions. High earners for this purpose are participants whose Federal Insurance Contributions Act (FICA) wages—as defined in Internal Revenue Code section 3121(a) —from the employer-sponsoring the plan exceed $145,000 in the prior calendar year, adjusted for inflation. Catch-up eligible participants earning less than $145,000 in FICA wages in the prior calendar year may make catch-up contributions either on a pre-tax or Roth basis.

Super catch-up contributions

Super catch-up contributions are optional—not mandatory—for plans that offer catch-up contributions.

The proposed regulations clarify that plans offering catch-up contributions have the option to include super catch-up contributions. However, offering super catch-up contributions would normally violate the universal availability requirement that applies to catch-up contributions,¹ which is meant to ensure all catch-up-eligible employees have the same opportunity to make the same dollar amount of catch-up contributions. To address this, the proposed regulations introduce a new exception to the catch-up contribution universal availability requirement, allowing plans to offer super catch-up contributions to only participants age 60 to 63 without violating the universal availability requirement, while other eligible participants can only contribute up to the regular catch-up limit.

Mandatory Roth catch-up contributions

Deemed Roth catch-up elections are permissible.

The proposed regulations would allow plans to adopt a deemed Roth catch-up election approach. This means catch-up contributions from participants subject to the mandatory Roth catch-up requirement will be automatically treated as designated Roth contributions, even if the participant’s only existing election is to make pre-tax catch-up contributions. The plan can adopt this deemed election approach regardless of whether it requires separate elections for regular elective deferrals and catch-up contributions. However, participants must be provided with an opportunity to choose a different election, such as opting to stop making additional elective deferrals.

Plans that do not adopt a deemed Roth catch-up election approach may instead adopt a design to automatically stop elective deferrals of a catch-up-eligible participant who is subject to the mandatory Roth catch-up requirement once their elective deferrals reach the standard limit for the year, unless the participant has made an affirmative election to designate their catch-up contributions as Roth contributions.

Wages that determine whether Roth catch-up contributions are required.

As noted above, if a participant’s FICA wages from the employer sponsoring the plan exceed the $145,000 wage threshold (the Roth catch-up wage threshold) in the previous calendar year (adjusted for inflation), their catch-up contributions must be designated as Roth contributions. Participants who did not have FICA wages in the prior calendar year from the employer sponsoring the plan would not be subject to the mandatory Roth catch-up requirement for the current year.

Examples of participants who do not have FICA wages include individuals who:

1. Had only self-employment income
2. Are not subject to FICA because their wages are taxed under the Railroad Retirement Tax Act or they are employees of state or local governmental entities covered by a Social Security replacement plan
3. Received cash compensation that was FICA-taxed in a previous year (e.g., payment from a nonqualified deferred compensation plan of an amount that became vested in a previous year)

In addition, the Roth catch-up wage threshold is not prorated for an individual’s year of hire. Therefore, a participant would only be subject to the mandatory Roth catch-up requirement in the second year of employment if their wages from the employer sponsoring the plan in their year of hire exceeded the full Roth catch-up wage threshold.

Roth option in a plan must be available to all catch-up eligible participants.

For plans that offer catch-up contributions and a Roth option, if any catch-up-eligible participants must make catch-up contributions as designated Roth contributions for a plan year, then all other catch-up-eligible participants must also be allowed to make their catch-up contributions as designated Roth contributions for that year. This requirement does not apply to plans without Roth contributions.

Mandatory Roth catch-up implementation rules:

• Designated Roth contributions made anytime during a year: These contributions can count as mandatory Roth catch-up contributions for that year. To offer flexibility for participants and reduce administrative complexity, the proposed regulations would allow any designated Roth contributions made throughout the year to count toward a participant’s mandatory Roth catch-up contribution requirement, even if made before the participant has reached an applicable limit for the year. If total designated Roth contributions for the year meet or exceed the mandatory Roth catch-up contribution requirement, these contributions will be considered catch-up contributions.
• Plans without a Roth option: Plans are not required to include a Roth option. For plans with a catch-up provision but no Roth option, the proposed regulations provide that participants subject to the mandatory Roth catch-up requirement would have a maximum catch-up contribution limit of $0, effectively preventing them from making any catch-up contributions. However, other catch-up-eligible participants can still make catch-up contributions without the plan violating the universal availability requirement (explained above) because an exception in the proposed regulations allows such plans to exclude those participants whose catch-up contributions are subject to mandatory Roth treatment. Furthermore, if a plan needs to exclude some highly compensated employees (HCEs) from making catch-up contributions to comply with nondiscriminatory availability requirements, this exclusion will also not violate these rules.
• Determination of employer sponsoring the plan: The determination of whether the Roth catch-up requirement applies to a catch-up-eligible participant is based solely on the participant's FICA wages from their direct, common-law employer, excluding wages from related entities. In plans with multiple employers, such as multiemployer plans, the participant's wages from one employer are not aggregated with wages from other employers to determine if they exceed the Roth catch-up threshold. Therefore, only the wages from the participant's direct employer are considered. The Treasury and IRS propose delaying the applicability of the Roth catch-up requirement for plans under collective bargaining agreements to allow time for adjustments.
• Correcting pre-tax catch-up contributions that should have been made as Roth: The proposed regulations introduce two new correction methods that a plan with a deemed Roth catch-up election can use if a participant who is subject to the mandatory Roth catch-up requirement for a year had any pre-tax catch-up contributions:
• Form W-2 correction method: This method involves transferring the disallowed pre-tax elective deferral amount (adjusted for allocable gain or loss) to the participant's designated Roth account in the plan and reporting that amount (not adjusted for allocable gain or loss) as a designated Roth contribution on the participant’s Form W-2 for the year of the deferral. This method results in reporting the contribution as if it had been correctly made as a designated Roth contribution originally so that it is includible in the participant’s gross income for the year of the deferral. This method cannot be used if the participant’s Form W-2 for that year has already been filed with the IRS or furnished to the participant.
• In-plan Roth rollover correction method: This method involves directly rolling over the disallowed pre-tax elective deferral (adjusted for allocable gain or loss) to the participant’s designated Roth account in the plan and reporting such amount (including the gain or loss adjustment) as an in-plan Roth rollover on Form 1099-R for the year of the rollover so that it is includible in the participant’s gross income for the year of the rollover.

Only plans with a deemed Roth catch-up election provision can use the two new correction methods. If a plan without a deemed Roth catch-up election provision accepts a pre-tax elective deferral that would be a catch-up contribution on account of exceeding an applicable limit, and the elective deferral is required to be a designated Roth contribution, then the plan would not be eligible to use one of the above-described correction methods and thus would have to use an otherwise applicable correction method to distribute the elective deferral to the participant. The deadlines for correcting failures using the new correction methods vary depending on which limit (e.g., annual elective deferrals, annual additions, ADP nondiscrimination test, or employer-provided plan limit) is reached that determines that the amount is a catch-up contribution.

Proposed applicability date

The proposed regulations will apply to contributions in taxable years starting more than six months after the final regulations are issued. However, taxpayers can choose to apply the higher limit for super catch-up contributions to taxable years starting after December 31, 2024. For collectively bargained plans, the rules apply to contributions in taxable years starting the later of six months after the final regulations are issued or after the last collective bargaining agreement in effect on December 31, 2025, terminates (ignoring any extensions). Plans may choose to apply the new rules to mandatory Roth catch-up contribution requirements starting after December 31, 2023.²

Comments to the Treasury and IRS on the proposed regulations must be submitted by March 14, 2025. A public hearing is scheduled for April 7, 2025, subject to cancellation absent any requests by interested parties to speak at the hearing.

Please contact your Milliman consultant for advice on how these provisions may impact your plan(s).

¹ The universal availability requirement for catch-up contributions applies to all participants participating in all 401(k) and non-ERISA 403(b) plans of the same employer (on a controlled group basis).

² SECURE 2.0 states that the statutory effective is taxable years beginning after December 31, 2023 (i.e., beginning January 1, 2024) for the new mandatory Roth catch-up contribution requirements. IRS Notice 2023-62, which was issued in August 2023, provides a two-year delay in the form of an “administrative transition period” so that plans need not apply this new requirement until January 1, 2026. These proposed regulations do not provide for a further delay for this.