Roth Catchups and HCEs
Despite the Universal Availability rule, there are some scenarios in which HCEs may be excluded from making catch-up contributions to a plan.
Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Massachusetts is representative of a common question that has to do with Roth Catch-up.
"Can highly compensated employees (HCEs) be excluded from making catch-up contributions?"
Highlights of the discussion
Yes, there are some scenarios in which certain HCEs may be excluded from making catch-up contributions to a plan. It depends on the circumstances.
Plans [401(k)s, 403(b)s, and governmental 457(b)s] are not required to offer catch-up contributions. Without a catch-up contribution feature, no one, including HCEs, may make catch-up contributions.
If a plan offers catch-up contributions, it must comply with the Universal Availability requirement, meaning it must allow all eligible participants (including HCEs) to make the same dollar amount of catch-up contributions [IRC §414(v)(4)]. Additionally, beginning in 2026 and for later years, (1) any participant whose prior-year FICA wages from the employer exceeded $145,000 (indexed) must make catch-up contributions as designated Roth contributions [IRC §414(v)(7)].
Plans are not required to offer designated Roth contributions. If a plan offers catch-up contributions but not designated Roth contributions, participants subject to the Roth catch-up requirement would not be able to make catch-up contributions, seemingly in violation of the Universal Availability rule. The final catch-up contribution regulations, applicable for 2027 and later years, (2) provide an exception to the Universal Availability rule in this scenario, where participants with FICA wages exceeding $145,000 are unable to make designated Roth contributions by plan design.
However, even though the Universal Availability rule is satisfied, a plan with catch-up contributions and without designated Roth contributions could violate general nondiscrimination requirements under IRC §401(a)(4), which require that contributions or benefits provided under a plan cannot discriminate in favor of HCEs.
This might occur, for example, in a partnership where HCEs (by ownership) with self-employment income (rather than FICA wages) above the Roth catch-up threshold are allowed to make pre-tax catch-up contributions, while one or more nonHCEs who happen to have FICA wages above the $145,000 Roth catch-up threshold cannot make designated Roth catch-up contributions. Result: The plan, unintentionally, favors HCEs.
The final catch-up contribution regulations provide a remedy or “safe harbor” for this scenario (involving self-employed individuals). If a plan does not include designated Roth contributions, the plan may (but is not required to) be amended to prohibit catch-up contributions for HCEs who would have had FICA wages over $145,000 (if their self-employment income were counted as FICA wages). Such an amendment will not be treated as failing the Universal Availability requirement for catch-up contributions because it avoids issues with general nondiscrimination requirements. The plan will need a reasonable method to determine whether an HCE would have exceeded the threshold if self-employment income were treated like FICA wages.
Note: The safe harbor can also be applied in other discriminatory scenarios, even in plans with no self-employed individuals. Check plan documents for coordinating language.
Conclusion
In general, the Universal Availability rule for catch-up contributions would not allow a plan to exclude HCEs from making catch-up contributions, per se. However, under limited exceptions, plans may exclude certain HCEs from making catch-up contributions by plan design and still satisfy the Universal Availability rule.
(1) The Roth catch-up requirement for participants who participate in collectively bargained multiemployer plans is extended to the first taxable year beginning after the date in which the collective bargaining agreement that is in effective on November 17, 2025, terminates.
(2) Note: The statutory requirement for Roth catch-up contributions begins in 2026; the final regulations generally apply beginning in 2027. For 2026, the IRS provides relief for plans that apply a reasonable, good-faith interpretation of the statute.
