ML BeneBits


To the great relief of many plan sponsors, administrators, recordkeepers, and payroll vendors, the IRS issued highly anticipated relief regarding the mandatory "Rothification" of catch-up contributions.

As described in our prior LawFlash, the SECURE 2.0 Act of 2022 (SECURE Act 2.0) provides that certain "High-Paid Participants" who make catch-up contributions (i.e., contributions that participants aged 50 and older can make over and above regular annual deferral limits to 401(k), 403(b), or governmental 457(b) plans) must make the catch-up contributions on a Roth basis—thus eliminating their ability to make pre-tax catch-up contributions. High-Paid Participants for a particular year are those participants whose Internal Revenue Code (Code) Section 3121(a) wages from the employer exceeded $145,000 (as indexed) for the preceding year.

Transition Challenges

This change, scheduled to take effect January 1, 2024, has posed significant administrative challenges and hurdles.

  • Plan sponsors, recordkeepers, and payroll providers have struggled to construct processes that appropriately identified High-Paid Participants and that restricted catch-up elections for these High-Paid Participants to be made only on a Roth basis.
  • Plan sponsorshave struggled with how best to timely communicate the Rothification of catch-up contributions to High-Paid Participants who may only be identified as such very late in the year.
  • Plans that did not have Roth contribution features were faced with the difficult choice of adding a Roth contribution feature or eliminating catch-up contributions for all employees.

Transition Relief

In Notice 2023-62, the IRS issued very generous transition relief to provide plan sponsors, recordkeepers, and payroll providers more time to work through these issues.

  • The IRS addressed a possible drafting issue in SECURE 2.0 that arguably eliminated catch-up contributions from the Code and provided a statutory interpretation of why catch-up contributions continue to be available post–SECURE 2.0. While this was expected, it is helpful to have it confirmed in formal guidance.
  • The IRS provided a two-year administrative transition period: through December 31, 2025. During this transition period, plans may continue to allow pre-tax catch-up contributions by High-Paid Participants and plans that do not have Roth features may continue to allow catch-up contributions.
  • The IRS provided a preview of "expected" future guidance, including:
    • The ability for a plan sponsor to treat a pre-tax catch-up contribution election by a High-Paid Participant as an election to make Roth catch-up contributions.
    • In determining whether an individual is a High-Paid Participant, separate employers in a plan maintained by unrelated employers (e.g., MEPs, PEPs, Taft-Hartley plans) may look only to the wages earned with each individual employer and are not required to aggregate wages with unrelated participating employers in the plan.
    • If an individual does not have Code Section 3121(a) wages in the prior year with the employer sponsoring the plan, that individual is not a High-Paid Participant in the current year.

While this "previewed" guidance is not final and could be changed (expanded or narrowed), and there is no absolute guarantee that it will be issued, the IRS's willingness to go on the record with this guidance suggests a high likelihood that it will be issued in some form.

Because of the significant administrative changes and challenges resulting from SECURE 2.0's Rothification of catch-up contributions, plans and service providers were facing a year-end sprint to implement new administrative processes, and some plan sponsors were considering taking drastic steps to comply (for example, eliminating catch-up contributions from plans entirely for some period of time). Notice 2023-62 helps them avoid these consequences and provides a welcome reprieve.