Taking Plan Design to New Heights

The 2026 Amendment Reckoning

The SECURE 2.0 Act, enacted at the end of 2022, introduced over 90 changes to retirement plans, with effects phased in over several years. By early 2026, several key provisions had become operational, including the requirement that catch-up contributions for higher earners—those whose 2025 FICA wages exceeded $150,000—must be made on a Roth (after-tax) basis starting January 1, 2026. Plans without a Roth option face a stark choice: add one or bar those participants from catch-up deferrals altogether, a trade-off that affects mid- to late-career workers who rely on these extra contributions (up to $7,500 or more in some cases) to bolster savings.

The broader stakes center on the December 31, 2026 amendment deadline for most non-governmental, non-collectively bargained plans. Sponsors must formally document compliance with SECURE 2.0 changes, even if they have operated in good-faith adherence since earlier effective dates. Failure to amend by year-end risks plan disqualification, though the IRS has historically granted relief for late corrections. This deadline arrives after years of operational shifts, including mandatory auto-enrollment for new plans (effective 2025) and enhanced catch-up options for ages 60-63 (phased in earlier), pushing sponsors to rethink plan design beyond defaults.

Employers have often defaulted to simple safe-harbor or pre-approved templates, sidelining customized features that could better align with business goals like talent retention or cost control. The current environment exposes tensions: mandatory Roth rules increase after-tax saving for some but reduce pre-tax benefits, potentially deterring participation among high earners wary of immediate taxation. Adding Roth capabilities demands payroll and recordkeeper updates, raising administrative burdens for smaller firms. Meanwhile, optional features like pension-linked emergency savings accounts (capped at $2,500-$2,600 in 2026) remain underused, as adoption lags due to complexity despite evidence they curb premature retirement withdrawals.