The organizations that signed onto the letter sent Wednesday include institutional investors such as the $102.9 billion Virginia Retirement System, Richmond, and the $88.2 billion Ohio Public Employees Retirement System, Columbus, record keepers such as Alight Solutions, Fidelity Investments and Empower, and trade groups including the ERISA Industry Committee, American Benefits Council and the Securities Industry and Financial Markets Association.
Given the provision's administrative complexity and need for implementation guidance, the organizations requested transition relief until Jan. 1, 2026.
"Although an outsider may see this as a straightforward requirement, there are numerous administrative hurdles that need to be overcome to implement it, many of which require guidance from the Department of Treasury and the Internal Revenue Service," they said.
Among the concerns is that the $145,000 limit is not related to any other limit that currently exists for qualified defined contribution plans. In order to implement the provision, plan sponsors will need to coordinate with their payroll providers and record keepers, the letter noted.
Under the current system, payroll systems do not distinguish by age and a worker's prior year's wagers typically aren't known until mid- to late-January, the organizations added.
Another issue is the way record keepers process catch-up contributions. Currently, the groups note, there are two ways to administer catch-ups. One is the spillover election, where catch-up contributions begin after the participant reaches the traditional annual contribution limit. The other is the separate contribution election, where a participant separately elects both regular and catch-up contribution amounts that are then made concurrently throughout the year. At the end of the year, contributions are reconciled to make sure the participant doesn't make catch-up contributions without first reaching the traditional contribution limit.
Mandating that all catch-up contributions be Roth would complicate matters, the letter said.
"Even with guidance, this change is an enormous undertaking requiring significant coordination among multiple parties and the development, testing, integrations, and implementation of entirely new systems, which will take substantial time to comply," the organizations said. "Furthermore, there is the concern that implementation without guidance will result in plans having to redo much of their work, adding to the cost of implementation."
Also of note, shortly after SECURE 2.0's passage, industry groups found a technical glitch in Section 603. The omission of a subparagraph in Section 603 effectively eliminated the ability of participants in 401(k), 403(b) and 457(b) plans to make catch-up contributions, whether Roth or pretax, beginning in 2024.
