Ask the Experts March 18, 2025

Are Separate Deferrals Needed for Regular Contributions and Roth Catch-Ups?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: I am confused about the new mandatory Roth catch-up rules for participants who make more than $145,000 in FICA wages and would like clarity. It sounds like the rule requires a participant to select catch-up contributions separate from the regular deferral, meaning that, in 2026, deferrals would go into both the pre-tax account and Roth account, starting at the beginning of the year. Then, if the regular deferrals do not meet the annual limit, a correction will need to be made. That would be a nightmare for taxes, and I hope I am misunderstanding.

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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A: You are right, that would be a nightmare!

As we stated in a prior column, the proposed regulations clarify that a participant who makes more than the $145,000 (indexed) threshold does not need to make a separate catch-up election for such contributions to be treated as Roth. Elective deferrals are generally not treated as catch-up contributions until they exceed the Internal Revenue Code Section 402(g) limit ($23,500 in 2025), meaning that if a participant elected only pre-tax deferrals, everything a participant defers up to the 402(g) limit would go into the pre-tax account.

The proposed regulations permit plan administrators and employers to deem any catch-up contributions made by those earning more than $145,000 in FICA wages as Roth contributions in 2026 (the “deemed Roth catch-up election”), and no special salary deferral or other election is required. So as long as the participant is given an effective opportunity to opt out of the deemed Roth catch-up election, deferrals greater than the 402(g) limit would automatically be treated as Roth catch-up contributions for the remainder of the year, and there would be no need for corrections.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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Data and Research March 17, 2025

State-Facilitated Retirement Plans Near $2B, but Access Gaps Remain

At least 59 million U.S. private sector workers lack access to workplace retirement plans, according to Georgetown University’s Center for Retirement Initiatives.

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State-facilitated retirement programs, including automatic individual retirement accounts, continue to provide expanded access to retirement savings, as the plans are nearing $2 billion in total assets.

But according to a new study conducted by the Georgetown University Center for Retirement Initiatives, significant access gaps remain, as 47% of U.S. private sector full-time and part-time workers older than 18—59 million workers—lack access to employer-sponsored retirement savings plans.

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In a recent survey, the Georgetown CRI, in conjunction with Econsult Solutions Inc., analyzed both part-time and full-time private sector workers, excluding workers 18 years old and younger.

According to the results, levels of access to retirement plans vary by employer type, with the smallest firms the least likely to offer access to coverage for their employees. Nationally, the Georgetown CRI estimated that 63% of private sector workers at small firms—those with fewer than 50 employees—lack access to retirement saving through their workplace, compared with 34% at larger firms.

An additional 23.4 million gig economy workers also lack access to workplace retirement plans.

Success with State-Facilitated Plans

The Georgetown CRI argued in its report that state-facilitated auto-IRA programs help fill these gaps, as they require private employers to provide access to a state program to employees who otherwise would have no workplace-linked retirement savings option. Prior research has also found that state retirement program mandates can be a catalyst for firms in those states to offer their own retirement savings plans.

State-facilitated programs have now been adopted in 20 states and, according to the Georgetown CRI, have the potential to offer coverage to an estimated 20.6 million workers in those states who currently lack access.

“State-facilitated retirement programs are a commonsense solution to helping working Americans achieve a dignified and sustainable retirement,” said Colorado Treasurer Dave Young, who chairs the Georgetown CRI State Advisory Council, in a statement. “In just over two years of operation, the Colorado SecureSavings Program boasts more than 72,000 individual contributors who have saved $100 million and counting. We are thrilled to be part of a national movement that is raising the standard of living for Americans beyond their working years.”

CalSavers, the California-sponsored plan and one of the first state programs to debut, has shown significant progress over the years. Launched in 2019, the program has amassed $1.11 billion in assets since, more than half of the national total of assets in state plans. As of December 2024, 39,126 employers in California are submitting payroll deductions for the program, and there are 539,100 funded accounts. On average, workers are contributing 5.2% of their salary to the auto-IRA, and the average funded account balance is $2,061.

California also has a significant aging population, with the number of people aged 65 or older expected to increase to about 8.4 million by 2040. In 2020, there were slightly more than 6 million people aged 65 or older living in California, indicating a 40% growth in this population by 2040.

Meanwhile, 20% of elderly households are relying on Social Security for at least 90% of their income, and the median annual per-beneficiary spending (both federal and state) for elderly Medicaid recipients in California is $17,300. The Georgetown CRI argued in the report that these constraints exemplify the need to boost private retirement savings.

Saver’s Match Provides Opportunity for Growth

The federal Saver’s Match, scheduled to take effect in 2027, would also provide additional support to low- and moderate-income workers. The CRI’s analysis showed that a worker lacking access to retirement savings through an employer-sponsored plan could benefit significantly from the combination of an auto-IRA program and the Saver’s Match.

For example, using the most common state auto-IRA program defaults, a typical 25-year-old worker would contribute $73,900 to a retirement account over a 40-year career, and the Saver’s Match could add $33,500 in contributions.

However, Congress is in discussions to extend the 2017 Tax Cuts and Jobs Act, a major priority for President Donald Trump. The Saver’s Match is estimated to cost the federal government $9.3 billion from fiscal year 2023 to 2032, making the program one of many potential trade-offs in budget negotiations that could be cut to fund the tax-cut extensions.

Out of all U.S. states, Florida has the highest percentage of private sector workers—59% (4.97 million employees)—who lack access to employer-sponsored retirement plans. An additional 2.33 million gig workers in Florida also lack access to workplace retirement options, and 73% of small business employees in the state lack access.

Many Southern states, like Florida, Georgia and Mississippi, have not implemented state-facilitated retirement programs, and the CRI argued that these states could greatly benefit from them.

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