We Accidentally Processed Pre-Tax Catch-Up Contributions. Now What?

No one wants to discover a payroll error involving a retirement plan, trust me!

If your organization accidentally processed pre-tax catch-up contributions for employees who should have been making Roth catch-up contributions, don’t panic.

This is one of the first major operational changes many employers have had to navigate under the SECURE 2.0 Act.

First, don’t panic.

This doesn’t necessarily mean your retirement plan is in trouble.

The important thing is identifying the error early and working with the appropriate service providers to correct it.

Q. Who should be involved?

This is rarely something payroll should handle alone.

Typically, you’ll want to involve:

• Your payroll provider
• Your recordkeeper
• Your third-party administrator (TPA) if applicable
• Your retirement plan advisor

Each may have a role in determining what happened and how the correction should be handled.

Q. Why did this happen?

The new Roth catch-up requirement affects certain higher-income employees.

Depending on your payroll system, recordkeeper integration, and plan administration process, identifying those employees and applying the correct tax treatment may require coordination between multiple systems.

That’s why many employers are encountering issues during implementation.

Every correction is different.

The correction process depends on several factors, including:

• Which employees were affected
• How long the error occurred
• Whether payroll has already been finalized
• Whether tax forms have been issued
• Guidance from your service providers

There isn’t one universal correction for every situation.

Q. What should you do now?

Start by gathering your retirement plan team.

Don’t assume one provider is handling everything.

Ask:

• Which employees were affected?
• What payroll periods are involved?
• Who is responsible for each part of the correction?
• What employee communication is needed?
• Will any tax reporting be affected?

Having everyone aligned early can save significant time later.

Key Takeaway

One of the biggest misconceptions about retirement plans is that a payroll issue is “just a payroll issue.”

In reality, retirement plans involve multiple providers working together.

When something changes, coordination matters.

The sooner everyone is working from the same information, the smoother the correction process is likely to be.