Is Your Retirement Plan Ready for the Audit* Implications of the Roth Catch-Up Requirement?

A new rule has changed how certain higher-income employees age 50 or older can make catch-up contributions to their retirement plans. Starting in 2026, these contributions must be made on a Roth (after-tax) basis.

Although the mandatory Roth catch-up requirement is straightforward, applying it correctly can be complex for plan sponsors. It requires coordinated changes across payroll, HR, and recordkeeping systems, along with clear documentation to support audit* readiness.

Understanding what’s required now can help plan sponsors avoid costly corrections later.

What the Roth Catch-Up Requirement Is — And What it Means for Plan Sponsors

Under the SECURE 2.0 Act of 2022, retirement plan participants aged 50 or older who earned more than $150,000 in Federal Insurance Contribution Act (FICA) wages from their employer in the prior year must make all catch-up contributions as Roth contributions as of January 1, 2026.

As a result, employers sponsoring 401(k), 403(b), and governmental 457(b) plans must implement the Roth catch-up requirement. While the provisions in the final regulations generally apply to taxable years beginning after December 31, 2026, the IRS allows plans to implement the requirement earlier using “a reasonable, good-faith interpretation of the statutory provisions.”

Taking steps toward compliance now can help you identify and address any issues before the IRS begins enforcing the requirement in 2027.

Operational Changes Auditors Will Expect

To comply with the Roth catch-up requirement, plan sponsors must go beyond policy updates and demonstrate consistent, well-documented processes. Auditors will focus on whether the plan is operating correctly in practice, not just in theory.

A Documented Process for Identifying Affected Participants

Auditors will expect plan sponsors to demonstrate a clear process for identifying participants subject to mandatory Roth catch-up treatment each year.

This includes evidence that the sponsor:

• Identifies participants who are age 50 or older during the current year
• Determines whether those participants exceeded the FICA wage threshold in the prior year
• Applies the wage threshold correctly by using FICA wages (Form W-2, Box 3), not total compensation
• Determines whether those participants made catch-up contributions
• Completes this determination before the first payroll of the year

Evidence typically includes payroll or HR reports, along with documentation describing how those reports were generated, reviewed, and validated.

Payroll System Controls

Auditors will also evaluate whether payroll systems are configured to enforce the requirement correctly throughout the year, not just at enrollment.

This includes processes and controls to:

• Prevent pre-tax catch-up contributions by participants subject to the rule
• Automatically route deferrals above the annual elective deferral limit into Roth catch-up contributions (if permitted by the plan)
• Apply different contribution logic for participants below the wage threshold

Updated Plan Documents

Employers should update their plan documents to reflect the new catch-up contribution rules, with plan amendments specifying how these contributions will be treated, including taxation and eligibility requirements.

Written plan document amendments for SECURE 2.0 provisions must be made by December 31, 2026. Plans must operate in compliance with the revisions based on the effective dates identified before the written requirement date.  

Alignment Across Plan, Payroll, and Recordkeeper Documentation

Consistency across systems is crucial for compliance. Auditors will assess whether:

• The payroll, recordkeeper, and plan administration teams follow the same catch-up election methodology
• Contribution designations and limits align across systems
• Participant communications accurately reflect how the plan operates

Without alignment, well-intentioned processes may still result in noncompliance.

Common Compliance Gaps to Watch For

Even plan sponsors that prepare early can encounter challenges when implementing the Roth catch-up requirement. Understanding typical pitfalls can help make the audit process smoother.

Misidentifying Participants Subject to Mandatory Roth Catch-up

Frequent errors include:

• Using total compensation instead of FICA wages
• Incorrectly aggregating wages across related entities
• Assuming highly compensated employee status automatically triggers mandatory Roth catch-up
• Not reevaluating eligibility annually

Allowing Pre-tax Contributions to Slip Through

Watch for instances of:

• Payroll systems allowing high earners to continue pre-tax deferrals above the annual elective deferral limit
• Delays in applying the Roth designation during the year
• Late, inconsistent, or undocumented corrections

Corrections may require adjusting payroll records, providing corrected tax forms and amended returns, or recharacterizing contributions as Roth, all of which can increase administrative burden and audit scrutiny.

Not Addressing Plans Without Existing Roth Features

Plans that did not previously allow Roth deferrals face a unique challenge. Under the new regulations, affected participants are unable to make catch-up contributions unless the plan is updated. Clear communication to affected employees is vital to help avoid confusion and frustration.

Why These Gaps Can Be Easy to Overlook

The Roth catch-up requirement introduces complexity because it relies on tax wage data rather than traditional plan eligibility criteria. Additionally:

• Plan sponsors may assume their third-party administrators or recordkeepers are identifying affected employees
• Eligibility is based on prior-year wages, creating risk during transition points such as year-end reporting cutoffs, payroll system migrations, or staff changes
• Some plan sponsors rely on future plan amendments rather than ensuring current operational compliance

Assigning clear ownership of the entire process and implementing controls that address timing and data dependencies can help ensure compliance.

Proactive Planning Is Key

Plan sponsors must be proactive in addressing the implications of the new requirement. Organizations that can demonstrate thorough controls, cross-functional coordination, and clear documentation will be better positioned for audit readiness during the first year of implementation and beyond.

Contact your CRI advisor with questions or to discuss how these changes may apply to your organization’s retirement plan.