Starting in 2026, all 401(k) plans must offer Roth provisions if you wish to allow catch-up contributions for Highly Paid Individuals (HPIs), as defined by the IRS. For 2026, an HPI is any employee who had more than $150,000 in FICA wages in 2025. If your plan does not include a Roth option, HPIs will not be able to make catch-up contributions. This is a significant regulatory change, and universal availability rules require that if Roth is offered, it must be available to all eligible participants, not just HPIs.

This is also important due to correction methods in the event of compliance testing failures resulting in excess contributions for Highly Compensated Employees (HCEs). HCEs may also be considered HPIs. One correction method allows for excess contributions to be reclassified as catch-up contributions, if the participant qualifies. If a plan does not allow for Roth, the only correction method available is to distribute the excess contributions and earnings.

Learn more about the new IRS contribution limit adjustments for 2026, and be sure to review your plan documents and procedures to ensure compliance. For questions or assistance, please contact your KL advisor.