WASHINGTON, July 19, 2023 – The ERISA Industry Committee (ERIC) and coalition partners today issued a letter to the U.S. Department of Treasury and the Internal Revenue Service requesting transition relief relating to a SECURE 2.0 Act provision requiring that individuals with FICA wages of more than $145,000 in the prior year make any retirement plan catch-up contributions on an after-tax (“Roth”) basis starting after December 31, 2023.
“ERIC strongly supported the SECURE 2.0 Act, but the provisions affecting catch-up contributions require extensive guidance from regulators and new payroll-related systems,” said Andy Banducci, Senior Vice President of Retirement and Compensation Policy at ERIC. “Plan sponsors need transition relief to work with regulators, their vendors, and their participants to effectively implement the new requirements.
In its rationale for the requested extension, the letter cites a number of administrative challenges:
- Employers will need to coordinate with their payroll providers and retirement plan recordkeepers, given that the $145,000 limit is not related to any other limit that currently exists for qualified retirement plans.
- Currently, employers do not have any system in place to determine who had FICA wages of more than $145,000 in the preceding year.
- Employers’ current payroll systems do not distinguish between employees based on age.
- Retirement plan recordkeepers will need to update the way they process catch-up contributions.
- Employers will need to communicate the required changes to relevant retirement plan participants within the next six months – but most employee communications will also be dependent on how the Department of Treasury responds to the numerous other questions presented on other matters related to SECURE and SECURE 2.0.
The full text of the letter can be found here.