Upcoming Federal Change: Mandatory Roth Catch-Up Contributions for Higher Earners
Effective January 1, 2026, employers participating in the Commonwealth of Virginia 457 Deferred Compensation Plan must implement new rules for age-based catch-up contributions for certain employees.
Under the federal SECURE 2.0 Act (Section 603), employees who earned $150,000 or more in FICA wages the prior year must make age-based catch-up contributions as after-tax (Roth) contributions. This requirement applies only to age-based catch-up contributions, which are based on the participant’s date of birth. Participants also may be eligible to use the standard catch-up, which must be applied for and approved by VRS, and is not subject to this federal tax provision.
The purpose of catch-up contributions is to allow individuals, typically those age 50 and over, to save more for retirement by contributing beyond the standard annual limits.
What Employers Need to Do
- Monitor participants’ FICA wages from the previous year.
- If a participant’s wages exceeded $150,000, only Roth contributions are permitted for their age-based catch-up contributions in the current year. (As with other IRS limits, the threshold amount is indexed and may change year to year.)
- Important: For participants who hit the pre-tax limit early, their pre-tax deferrals will stop until they make a new after-tax Roth election. This may result in missed deferrals and, if applicable, employer match contributions. For Hybrid Retirement Plan members, voluntary contributions can only be made on a pre-tax basis, so planning ahead is essential. First, determine the dollar amount of your voluntary contributions for the year. Then subtract that amount from the normal elective deferral limit to determine much you can still contribute through a supplemental plan.
Additional Resources
- Job Aid: Voya has provided instructions for creating the new Mandatory Roth Catch-up (MRC) indicator file, which employers must submit annually. See the Employer Secure 2.0 Section 603 Job Aid. The initial file is due January 31, 2026. Voya will accept updates throughout the year.
- Reporting to Voya: Use the Sample Mandatory Roth Catch-up (MRC) indicator file to identify participants whose prior-year FICA wages exceeded $150,000. Submit annually or in mid-year updates.
- Webinar: Watch the recorded Defined Contribution Employer Secure 2.0 webinar for a detailed overview of these changes.
