DC plans need guidance on SECURE 2.0’s higher catch-up limit 

The SECURE 2.0 Roth savings changes for defined contribution plans need implementation guidance.

May 1, 2023
The SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328) raises the catch-up contribution limit for participants ages 60–63 in employer-sponsored defined contribution (DC) plans, starting in 2025. However, ambiguities around a “universal availability requirement” for catch-up contributions in the Internal Revenue Code (IRC) and related regulations may leave some plan sponsors uncertain about whether they’re required to implement this change. IRS guidance is needed to clarify the rules before the higher catch-up limit goes into effect.

SECURE 2.0 raises catch-up limit for some participants

Under IRC Section 414(v), DC plans can let certain employees make catch-up contributions above the otherwise applicable deferral limit (e.g., the Section 402(g) deferral limit or a lower limit set by the plan). Employees are eligible beginning in the year they turn age 50. Catch-up contributions are currently limited to an annually indexed dollar amount ($7,500 in 2023), but starting in 2025, SECURE 2.0 raises the catch-up limit for participants in the years they turn ages 60–63 to the greater of two amounts:

  • $10,000
  • 150% of the 2024 catch-up contribution limit for other participants

Both amounts are indexed after 2025.

Lower limit for SIMPLE plans. A lower limit applies to savings incentive match plans for employees of small employers (SIMPLE plans). In 2023, the catch-up limit for these plans is $3,500. Starting in 2025, for years in which participants turn ages 60-63, the catch-up limit will be the greater of $5,000 or $150% of the 2025 catch-up contribution limit for other SIMPLE participants. Both amounts are indexed after 2025.

Ambiguity around ‘universal availability’

SECURE 2.0 doesn’t specify whether a plan must offer the new higher catch-up limit to eligible participants. Plans don’t have to offer catch-ups at all, so the new limit won’t apply to plans that don’t offer this feature. However, if an employer wants to offer catch-up contributions, a rule in IRC Section 414(v) and the related regulations known as the “universal availability requirement” might require plans to implement the higher limit. This requirement says an employer and all members of the employer’s controlled group must provide the same effective opportunity to make catch-up contributions under all plans in the controlled group (although certain exceptions apply — e.g., for collectively bargained employees).

The statutory phrasing of the universal availability requirement says that plans must allow “all eligible participants to make the same election” with respect to catch-ups. The catch-up contribution regulations say all eligible participants must be “provided with an effective opportunity to make the same dollar amount of catch-up contributions.” The statute and regulation arguably can be interpreted as allowing plans to apply a uniform lower limit on catch-up contributions than the statutory limit. Under that interpretation, imposing the regular catch-up contribution limit on all catch-up eligible employees should be permissible. But in the preamble to the Section 414(v) regulations, IRS explains that the universal availability requirement isn’t satisfied unless eligible participants can defer up to the otherwise applicable deferral limit plus the catch-up contribution limit. This suggests that plans offering catch-ups may not be able to impose the regular catch-up limit on participants ages 60–63 once this provision takes effect.

Is offering the higher limit mandatory?

Administration of catch-up contributions will already become significantly more complicated next year once plans implement SECURE 2.0’s mandatory provision requiring high earners to make catch-up contributions on a Roth basis. Some sponsors might prefer to continue applying the same dollar limit for all catch-up eligible employees for administrative ease. However, in the absence of IRS guidance on how the universal availability requirement applies to this change, sponsors considering a single catch-up limit for all eligible participants should consult with legal counsel. An alternative would be to eliminate catch-up contributions altogether, but that may be unpopular with employees.

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