Plan Sponsor

The IRS has finalized regulations under SECURE 2.0 that will impact how certain participants save for retirement. Under this change, employees with prior-year FICA wages above $150,000 will no longer be able to make pre-tax catch-up contributions to their 401(k), 403(b), or 457(b) plans. Instead, those contributions will have to be made on a Roth, or after-tax, basis. The rule takes effect on Jan. 1, 2026. According to the IRS, the regulations “generally apply to contributions in taxable years,” beginning in 2027. However, it also notes that “the final regulations also permit plans to implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good faith interpretation of statutory provisions.” The administrative transition period (under Notice 2025-67), which generally ends on Dec. 31, 2025, remains unchanged by the final regulations.

For many American workers over 50, retirement timelines have become a moving target, with increasing numbers now planning to stay employed longer due to economic volatility, market uncertainty, and the rising cost of living. Gen Xers, now in their mid-to-late 40s, 50s, and early 60s, are increasingly anxious about their retirement readiness. With median retirement balances of a 55-year-old at $50,000 and confidence in Social Security eroding, some say they simply can’t afford to stop working.

Markets have been flirting with record highs on a regular basis, but not all employees are riding the wave toward retirement readiness. According to Vanguard’s How America Saves 2025, participation and/or balances still lag for low-income workers, young employees, women, and those with short tenure. These segments face unique hurdles that statistical averages may conceal. Forward-thinking plan sponsors can respond with non-fiduciary plan design and education strategies that go beyond the obvious to address real-world financial challenges.

Participants in their 60s are poised on the cusp of retirement, where every move can have big consequences. Plan sponsors have a critical opportunity to support late-career workers’ retirement planning efforts by providing relevant tools and communication strategies that help them make more informed choices during these critical years.

As summer is winding down, now is actually a great time for you to do a mid-year check on your organization’s plan design to see how it is performing among your employees. Are they participating in the plan? Are they increasing their contributions every year? One way to adjust your plan design to say “yes” to both of those questions is by “stretching the match.” This is a high-impact, low-cost tool that can boost contribution rates among your organization.

Retirement plans have long subjected employer contributions to vesting schedules, rewarding tenure by increasing the participant’s ownership in those contributions in proportion to their years of service. However, several law firms have recently challenged this long-standing and common practice, arguing that using forfeitures to offset employer contributions is not in the best interests of participants or beneficiaries, as ERISA requires.