Once you have determined that you will be impacted by the new law, what happens next?  Everything begins with payroll and how payroll is processed for your company.  This is because if the funds are not taken correctly out of pay, this cannot be done properly.

  • An HPI can always choose to make their entire 401(k) contribution on a Roth basis.  If they choose to do this, then this only needs to be set up through payroll once.  The new law will then not apply to them since their Catch-Up Contribution will be made as Roth as required.
 
  • If you run your own payroll, you will need to make sure that when you or an employee reach the deferral maximum of $24,500, the balance of the 401(k) contribution for the year will need to be withheld as Roth.  This may require that you manually change your payroll software so that this is done correctly. If someone is deferring the maximum amount and is having it ratably taken from pay, they will likely hit the $24,500 limit in August, September or October depending on your payroll frequency. 
 
  • If you use a payroll service, they may have already started to reach out to you regarding this.  They will need to make sure that they have the correct W-2 wages for the 2025 year in their systems.  If you will be using the same payroll service and module in 2026 that you used in 2025, then they should have this information.  If you are making a change for 2026, you will need to make sure that they have this information as part of the conversion.
 
  • Each payroll service is going to have their own rules about how they plan to comply with the rules.  Hopefully, most will simply use the “spillover method” which will automatically start pulling the contributions as Roth once the maximum has been hit.  Others may require a form signed by the participant or some other authorization as to what to do when the maximum is hit. 
 
  • A participant can elect to stop their 401(k) contributions at the $24,500 level if they don’t wish to make Roth Catch-Up Contributions.  This important piece of information will need to be passed on to your payroll service. 
 
Once the dollars are properly withheld from the participant’s pay, the next step is getting these amounts correctly sent to the company who is housing the assets. 

  • If the assets are invested in a managed/pooled account or in a Self-Directed Brokerage Account, this is relatively simple.  There won’t be any change in how the amounts are remitted.  In this case, Frank Pension Consultants, Ltd. is acting as the “recordkeeper” and you are already letting us know on the annual census spreadsheet how much was taken out of each participant's check as Pre-Tax and how much was Roth.  For any participant who is an HPI, they will likely have amounts that are both pre-tax and Roth.  It is very important that this information be conveyed to us so that we can record it properly for the plans’ records.
 
  • If the assets are on a Recordkeeping platform (such as Voya, John Hancock, T. Rowe Price, Ascensus/Vanguard, American Funds, Empower, etc.) things can be a bit more complicated depending on who remits the contributions to the recordkeeper each payroll.
 
  • If the payroll service has “integration” with the recordkeeper, then this should be seamless.  The amounts in the file that will be remitted will match how they were taken out of payroll.
 
  • If the payroll service runs payroll, but you or someone else on your team (maybe HR) uploads a file to the recordkeeper every payroll period, care will need to be taken when the change happens from pre-tax to Roth.  In small plans where the employees are salaried and the amounts don’t change each payroll, this is where we anticipate potential problems.  Since there are no changes each payroll, the administrator responsible for uploading the file may use the same file they used the last time.  That will work for the first 7 or 8 months of the year, but that will cause problems with the first payroll after someone hits the maximum and the contributions become Roth.
 
  • We have received information from some of the recordkeepers about how they will be handling the potential problem if the file contains what looks to be “incorrect information”.  Each has their own rules and I would anticipate that you will be receiving something from your recordkeeper explaining how they will be handling this.  It appears that most will be asking for you to provide them with a list of HPI each year so that they can flag these people in their system.  Then, if the file they receive contains pre-tax dollars when it should reflect Roth dollars, they will work with you to get this fixed in real time.  Some will not be doing this and it will be incumbent on you (and us) to get this fixed in their system.  Unfortunately, we will not find out that this is a problem until we start doing our work for the 2026 year in the Spring of 2027.  At that time, it may be very difficult to try to fix. 
 
  • If your last payroll file for the 2025 year is uploaded to the recordkeeper in 2026, please make sure that you provide the recordkeeper with accurate payroll date information with the file.  This is so that the recordkeeper doesn’t accidentally mistake the last 2025 deposit for the first 2026 deposit.  This will result in them thinking that the HPI has hit the pre-Catch-Up limit one payroll earlier than they should have. 
 
  • Current law requires that plans have practices and procedures in place for what to do in the event that something is done incorrectly.  A sample of this can be downloaded by clicking the button below.  When you download this file, you should change the name at the top to match your plan name then, on the last page, you need to sign, date and fill in your name.  You should keep a copy of this with your important plan records.  You can also send a copy back to us and we will keep in your plan files in case they are needed. 
  • Below is a sample notice that you can provide to your HPIs.  This will explain the law change for them.  Before providing the notice to the HPI, please fill in your name, email address, and phone number where indicated. 
​We are hoping that by working together, you, your payroll people, your recordkeepers, and Frank Pension Consultants, Ltd. will be able to keep errors to a minimum.
 
Please feel free to reach out to us with any questions that you may have on this.