This page outlines the necessary steps for your school district to comply with the recently proposed IRS regulations implementing the revised catch-up contribution rules introduced by SECURE 2.0 Act. These regulations have significant implications for our 403(b) and 457(b) plan(s) and require immediate attention.
Key changes and requirements
The SECURE 2.0 Act mandates that catch-up contributions for eligible participants (age 50 or older with prior year earnings of $145,000 or more from your school district must be designated as Roth contributions if the plan offers a Roth option.
Critical decision point: Roth option availability
- Option 1: The plan already has a Roth option. No further action is necessary.
- Option 2: Amend the plan to include a Roth option: This will allow eligible participants to make Roth catch-up contributions as required by the SECURE 2.0 Act. If a Roth option is offered, the plan does not need to obtain a new salary reduction (SRA) form from the participant for the Roth catch-up. The IRS permits plan sponsors to use the initial contribution election for pre-tax contributions to apply such post-tax Roth catch-up contributions. This simplifies the process for both the plan and the participant.
- Option 3: Do not amend the plan to include a Roth option: If you choose not to offer a Roth option, eligible participants (those meeting the age and income requirements) will not be able to make catch-up contributions. This could negatively impact employee retirement savings and may not be viewed favorably by employee
Action Required:
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For your 403(b)/457(b) plan without a Third Party Administrator or Roth option
- If you do not currently offer a Roth option, evaluate the feasibility and implications of adding one to the plan. Consider factors such as administrative costs, vendor capabilities, and employee demand.
- If the decision is to add a Roth option, amend the plan document and implement the necessary administrative procedures. Ensure that the plan document reflects the change.
- Communicate the decision and any plan changes to all employees. Clearly explain the new catch-up contribution rules and how they will be implemented. If a Roth option is not being added, communicate the implications for eligible employees' ability to make catch-up contributions. Please remind participants need to update their Salary Reduction Agreement.
- If you do not currently offer a Roth option, evaluate the feasibility and implications of adding one to the plan. Consider factors such as administrative costs, vendor capabilities, and employee demand.
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For your 403(b)/457(b) plan with a Third Party Administrator but doesn't have a Roth option
- If you do not currently offer a Roth option, evaluate the feasibility and implications of adding one to the plan. Consider factors such as administrative costs, vendor capabilities, and employee demand.
- If the decision is to add a Roth option, work with your third-party administrator to amend the plan document and implement the necessary administrative procedures. Ensure that the plan document is updated.
- Communicate the decision and any plan changes to all employees. Clearly explain the new catch-up contribution rules and how they will be implemented. If a Roth option is not being added, communicate the implications for eligible employees' ability to make catch-up contributions. Please remind participants that they need to update their salary reduction agreement.
- If you do not currently offer a Roth option, evaluate the feasibility and implications of adding one to the plan. Consider factors such as administrative costs, vendor capabilities, and employee demand.
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For your 403(b)/457(b) plan with a Roth option
- If you currently offer a Roth option, confirm your plan document is up to date.
- Communicate the new rule to all impacted employees. Clearly explain the new catch-up contribution rules and how they will be implemented. Please remind participants need to update their Salary Reduction Agreement.
- If you currently offer a Roth option, confirm your plan document is up to date.
Don't navigate Secure 2.0 Act and 403(b) catch-up provisions alone. Horace Mann Retirement professionals and your local Horace Mann representative are ready to answer your questions.
The information provided here is for educational purposes only, and should not be considered a recommendation or investment, tax or legal advice.
For Plan Sponsor use only. Not for use with participants.