P u b l i c R ePub Pub Pub t i r e lic Retirem lic Retirem lic Retirem m e n t Rent Research ent Research ent Research e s e a r c h L L L L aa a ab b b b A A A A collabora collabora collabora collaborative tive tive tive eff eff eff effort of ort of ort of ort of E E E EBRI a BRI a BRI a BRI an n n nd d d d NAGDC NAGDC NAGDC NAGDCA A A A Fast Fact CONCLUSION 1 Internal Revenue Service. “Issue Snapshot - 401(k) Plan Catch-up Contribution Eligibility.” Available at March 7, 2024 Figure 1 The SECURE 2.0 Act requires catch-up contributions for those who earned more than $145,000 in the https://www.irs.gov/retirement-plans/401k-plan-catch-up-contribution-eligibility. previous calendar year to be Roth Employee contributio Cont ns. ributio Data from ns Dist 2021ributio reveals n that, of all participants ages 2 50 or older earning more than $145,000, 20.6 percent made contributions of more than $19,500. Section 603 of the SECURE 2.0 Act of 2022 stipulates that all catch-up contributions to qualified retirement (Limited to Employees Age 50 or Older and Earned More Than SECURE 2.0 ACT: CATCH-UP CONTRIBUTIONS These participants make up a small share of all participants, but roughly one-half of plans would be plans will be subject to Roth tax treatment, effective for taxable years beginning after December 31, 2023. An $145,000) except ion is provided for employees with compensation of $145,000 or less (indexed). The requirement for this impacted by this Roth requirement. 30% to start after December 31, 2023, was given an administrative transition period until taxable years after The IRS definition for a catch-up contribution is “an elective deferral made by a participant age 50 or December 31, 2025. 24% 25% The older th IRS at rele excee ased ds a Notic statutory limi e 2023-62 t, on a p Augu lan-st im 25, posed li 2023, mi an t, or th nounci e actual d ng that eferral the implementation percentage (ADP) of the test new 21% 1 limit for highly compensated employees (HCEs).” In 2021, this statutory limit for an employer- Roth catch-up requirement would be delayed until taxable years starting after December 31, 2025. 3 The annual salary provided in the database is used as a proxy for FICA wages. Salary information is available 20% Ac sponsored cording to retireme the 16% notic nt e, plan while was the $19,500, provisions and of pa S rticipa ectionnts 603 age app s 50 or ly to older we taxable years re allow beginning ed to contribute after for approximately 40 percent of participants in the PRRL Database. 15% an additional catch-up contribution of $6,500. These limits are indexed annually. December 31, 2023, the first two taxable years beginning after December 31, 2023, will be considered 15% 12% 11% an administrative transition period with respect to the requirement. Benefit decision makers should use Section 603 of the SECURE 2.0 Act of 2022 placed restrictions on catch-up contributions. Originally, 10% the extended time to prepare to offer Roth plans to affected participants. from 2024 onward, individuals having earnings (as defined under the Federal Insurance Contributions 5% Act (FICA)) of more than $145,000 in the previous calendar year would be required to make all catch- 2 up contributions as Roth after-tax contributions. In this Fast Fact, the Public Retirement Research Lab ABOUT PRRL 0% Database is used to assess the impact of this provision on public-sector retirement plan participants. $0 $1–$4,999 $5,000–$9,999 $10,000–$14,999 $15,000–$19,500 $19,501–$26,000 The Public Retirement Research Lab is a retirement-industry-sponsored collaborative effort of the Employee Benefit Research Institute (EBRI) and the National Association of Government Defined Contribution Administrators (NAGDCA). The PRRL analyzes data from its Public Retirement Research BY ACC ABOUT T OUNT BAL HE DAT ANCE A Database, the first-ever database specific to public-sector defined contribution data, to produce As indicated in the figure below, 32 percent of participants ages 50 or older who earned more than unbias The ed, PR aRL ctionab Database le res isearch an opt aim -in ed coll at abo enh ration a ancing mo un ng pub derstand lic reti ing rem of ent p thelan sponso design and rs. The utili an zat al io ysis n of $145,000 had account balances of $200,000 or less (Figure 2). Overall, 57 percent of the participants publreflects ic-sect dat or d a for efin two hu ed conndr trib ed si utioxt n yr-e seven 457( tirement p b), la 401(a), ns to b 4 et 01(k ter ), and 40 inform p 3(b) d ublicefi pln aen d co dentribu sign, tion (DC) had plans; ov account er 3.0 balan million r ces of $eti 400,00 rement ac 0 orcou less. nts acro ss 2.5 million state, county, city, and subdivision management, innovation, and legislation. To learn more, visit www.prrl.org. government employees; and $170 billion in assets as of year-end 2021. Plan sponsors receive complimentary benchmarking as a participant benefit. For more information on how to participate, Figure 2 please contact NAGDCA Executive Director Matt Petersen at mpetersen@nagdca.org. Thanks to PRRL Partners: Account Balance Distribution Founding Partners: (Limited to Employees Age 50 or Older and Earned More Than $145,000) Capital Group | American Funds As of year-end 2021, the PRRL dataset included over 3 million participants. However, PRRL has age Invesco 35% 32% and salary information for about one-third of the participants. Out of the participants with the Nationwide 30% necessary data, 18,671 participants (less than 2 percent) were ages 50 or older and earned more than 25% 3 $145,000. While the percentage of public-sector participants affected by this mandatory provision is 25% Supporting Partners: relatively low, the percentage of the public-sector plan sponsors in the database impacted is much 20% 16% MissionSquare higher at 55 percent, as these participants are dispersed across many plans. In other words, 1 in every 15% 2 Voya plan Fina spon ncial sors may be required to make plan administration changes as a result of this provision. 11% 9% 10% 7% 5% BY CONTRIBUTION LEVEL 0% Examining the data from 2021 reveals that, of all the participants ages 50 or older earning more than $200k or Less $200k to $400k $400k to $600k $600k to $800k $800k to $1 $1 Million or More $145,000 in the database, 21 percent made contributions of more than $19,500 (Figure 1). Million ENDNOTES © 20 © 20 © 202 2 24 4 4 3 4 2 PRRL PRRL PRRL...