Secure 2.0 Section 603 was intended to require that all catch-up contributions be Roth contributions. However, it contains a drafting mistake that inadvertently results in no participants being able to make catch-up contributions (pre-tax or Roth) beginning in 2024. The accidental elimination of a subparagraph in the text of the bill creates the problem.
Alarm Bells Ringing
Within a matter of days after the passage of Secure 2.0, this issue surfaced and was acknowledged as a technical error, setting off alarm bells throughout the industry. Importantly, it is generally understood that essentially no member of Congress believed that they were voting to eliminate catch-up contributions in 2024 and beyond. That said, fixing a technical error in a bill, even a significant one that is clearly unintentional, isn’t always easy for Congress.
Potential Fixes
Option #1: The first and most straightforward option would be for Congress to enact a technical correction to address this mistake. It is generally recognized that this issue is an unintended drafting error and one that would be corrected without contention. While straightforward, this option could face a timing challenge as technical corrections legislation is generally not enacted on an accelerated basis. However, the potential magnitude of this error could assist in streamlining such legislation, specifically by hitching a ride on another bipartisan bill that is moving through Congress this year.
Option #2: A second potential solution could be guidance issued by the IRS. Unfortunately, it is not entirely clear whether the IRS has the regulatory authority to essentially re-interpret the statutory language to reflect what was intended as opposed to what was actually drafted.
Option #3: A third option provides that, absent a formal correction, plan sponsors follow the intended meaning of the law in the reasonable assumption that even if the error was not fixed in 2023, the error will eventually be corrected. This is clearly a “distant third” in the order of preference of plan sponsors. While it is generally accepted that this is an error that will be corrected, leaving plan sponsors to skate the presumption of correction prior to it actually occurring is the least favorable option.
Damage Control
It is generally accepted that the best option would be that Congress takes affirmative action to correct the error and retain catch-up contributions in 2024 and beyond. If Congress doesn’t act before 2024, it will potentially put 2024 catch-up contributions at risk. Absent such a fix, the IRS could step in and issue guidance to circumvent the glitch. Stay tuned.
