MissionSquare Advocates for Delay in Required Roth Catch-up Rules; Emergency Savings for Governmental Plans

April 3, 2023

As part of our ongoing efforts to help plan sponsors comply with the many provisions of the SECURE 2.0 Act, MissionSquare has been urging lawmakers to delay by at least two years a new requirement related to age-based “catch-up” retirement contributions. Under SECURE 2.0, employees age 50 and older who earned more than $145,000 in the preceding year from their current employer must make their catch-up contributions on an after-tax (i.e., Roth) basis by Jan. 1, 2024.

An age-based catch-up contribution is an elective contribution made by a participant age 50 or older that exceeds a statutory limit, a plan-imposed limit, or the actual deferral percentage test limit for highly compensated employees. Many government plans do not have a Roth option, and others are bound by state laws and union contracts that must be updated to include the catch-up features.

We, along with our industry trade partners National Association of Government Defined Contribution Administrators, Inc. (NAGDCA) and the Society of Professional Asset-Managers and Record Keepers (SPARK), have also been strongly advocating for a delay through several coordinated industry letters and meetings with Congress, the U.S. Department of the Treasury and the IRS.

MissionSquare has been engaged with congressional and regulatory officials many times over the past few months describing the issue and explaining that, unless the SECURE 2.0 requirement is immediately delayed, many plan sponsors’ only means of compliance will be to eliminate all catch-up contributions for 2024.

If a delay is not announced until, for example, the end of 2023, it could be too late to prevent this adverse result, since compliance systems need to be designed and integrated well before the effective date.

In addition to the request for a delay, MissionSquare — with NAGDCA, SPARK, and others — has asked for guidance on a number of issues and for the additional compliance time, in order to give state and local governments the opportunity to consider and enact needed legislation and to avoid requiring changes during the term of a collective bargaining agreement or other applicable binding agreements.

The $145,000 wage threshold that is integral to the mandatory Roth catch-up requirement necessitates coordination among employers, plan administrators, payroll providers, recordkeepers, and plan consultants. That work is underway, but indications are clear that, in many cases, full coordination is simply not possible by Jan. 1, 2024.

The advocacy efforts have also emphasized that, even if Congress does not act, MissionSquare and others believe Treasury and the IRS have the authority to unilaterally provide the necessary relief. The additional time requested would also provide Treasury and the IRS, and the regulated community, the time to provide, digest, and implement such guidance.

In addition to actions needed on the new Roth catch-up requirement, MissionSquare has asked for legislation clarifying whether the new optional “pension-linked emergency savings account”, which plan sponsors may add to their defined contribution retirement plans, applies also to governmental 457(b) plans.

Effective in 2024, employer plans will have the option to include a PLESA Roth account that allows participants to save up to $2,500 for emergency expenses. Though it was Congressional intent to provide governmental plans the ability to offer these side-car savings accounts, Section 127 of SECURE 2.0 was written as an amendment to ERISA, making it extremely difficult for these plans to utilize the option. We have strongly advocated for legislation clarifying the use for 457(b) plans by tying the PLESA to the Internal Revenue Code instead of ERISA. Regardless of the future of the legislation, regulatory guidance is still needed to better understand implementation of a PLESA.

For more information on the request for a delay in the Roth catch-up rules or other retirement policy issues, contact Erica McFarquhar, Deputy General Counsel, or Irica Solomon, Head of Government Affairs.