The AICPA sent suggestions to the Treasury Department and IRS on their proposed regulations to implement a SECURE 2.0 provision mandating that catch-up contributions that are made to retirement plans by certain eligible participants must be designated as Roth contributions.
In a Jul. 1 letter, the organization asked these agencies to address these items as they relate to the proposed regulations: safe harbor for Form W-2 reliance and the application to disregarded entities.
On the safe harbor topic, the AICPA suggested that the Treasury and IRS offer a safe harbor, letting all plan administrators depend on wage information as reported on Forms W-2 when determining if employees have exceeded the catch-up wage threshold for the Roth Mandate.
Without the a safe harbor's inclusion, the AICPA suggested that the Treasury and the IRS offer specific guidance for scenarios involving predecessor-employers, and other third-party arrangements such as common paymasters, professional employer organizations, and certified professional employer organizations. These would include, but not be limited to, relief for noncompliance that might result and otherwise be unavoidable in the reasonable administration of plans utilizing Form W-2 information to identify the employees subject to the Roth Mandate.
In terms of the application to disregard entities, the AICPA recommends that the agencies communicate their position on whether a disregarded entity is treated as a separate “employer sponsoring the plan” for purposes of Prop.
Reg. 1.414(v)-2(b)(3) and (4).
The application of the Roth Mandate depends on whether, in the prior year, an individual received wages from “the employer sponsoring the plan” over the applicable threshold.
Proposed Reg. 1.414(v)-2(b)(3) states: For purposes of determining the employer sponsoring the plan with respect to a catch-up eligible participant, the employer is the participant’s common law employer. Thus, for purposes of this section, the employer sponsoring the plan does not include other entities that are treated as a single employer with a catch-up eligible participant’s common law employer under section 414(b), (c), (m), or (o).
Proposed Reg. 1.414(v)-2(b)(4) partly states: If an applicable employer plan has more than one employer sponsoring the plan (that is, the plan is sponsored by multiple employers that are aggregated under section 414(b), (c), (m), or (o), or is a multiple employer plan or a multiemployer plan), a catch-up eligible participant’s wages for the preceding calendar year from one employer sponsoring the plan are not aggregated with the wages from another employer
sponsoring the plan .