We are updating participant deferral election forms and the online experience to apply the “deemed” election approach based on recently published IRS final regulations. Under this approach, employee contributions for participants subject to the Roth catch-up requirement will be treated as after-tax Roth contributions once their pretax contributions reach a plan limit, unless they elect at the time a limit is reached to stop contributions.
This approach eliminates the need for a plan to obtain a participant’s affirmative election before switching their deferrals from pretax to Roth for catch-up purposes.
Action required: Coordination with your payroll provider is essential. Engage with your payroll provider as soon as possible to ensure they are prepared to change an impacted participant’s pretax deferrals to Roth when the participant’s pretax deferrals reach a limit. This coordination is especially important because we understand that some payroll providers may apply the “deemed” election only after a participant’s combined (pretax plus Roth) contributions reach a plan limit.
Note: Our participant deferral election forms and the online participant experience support the single “spillover” contribution election method. Under this method, a participant makes a single election and contributions simply continue (“spill over”) as catch-up contributions once a catch-up eligible participant has reached a plan limit. While most plans already use this method, we recommend you confirm your payroll system is set up to apply this method.
We are updating participant deferral election forms and the online experience to communicate that participants subject to the Roth catch-up requirement cannot make any catch-up contributions and that their elective deferral contributions will stop when a plan limit is reached.
Action required: Coordination with your payroll provider is essential. Engage with your payroll provider as soon as possible to ensure they are prepared to stop pretax deferrals for impacted participants when a limit is reached.
Note: If your plan does not permit Roth contributions, participants subject to the requirement cannot make any catch-up contributions. Consider talking to your third-party administrator about whether to add a Roth contribution option so that all participants have the ability to make catch-up contributions. You or your third-party administrator can add Roth contributions to your plan by completing the RecordkeeperDirect® Plan Maintenance Request Form.
Participants will need to understand how the new rule may impact their catch-up contributions. We are updating deferral election forms to include language to inform new and existing employees without an active deferral election about the new rule. But for participants with active deferral elections, you need to provide advance notice to inform them of the changes. To support you, we’ve created the following sample communications you can use:
Action required: Adjust the sample notice above to reflect your plan details and provide it to participants with active deferral elections.
We have introduced a new required data element on our system to identify which participants are subject to the Roth catch-up requirement.
Action required: The data element should be provided annually by the plan sponsor or third-party administrator in order to access reporting to assist with contribution processing and identifying any participants that may require correction.
You will need to identify each participant age 50 or older that exceeds the prior-year FICA wage threshold by taking the following steps:
For more information about the new requirement and how it may impact your plan, reach out to your plan’s third-party administrator or contact us at (800) 421-6019.
Thank you for your attention to this important matter and the opportunity to serve you.