MAP Retirement Merger
As announced on July 18th via email, Blue Chip officially merged with MAP Retirement. This merger provides us with resources for innovative product development and marketing as well as additional industry expertise. Over the last month, you should have seen no change in the level of service our staff provides to your plan, and we anticipate that if there is any change in the future it would only be to enhance the services we provide you. Our whole team is here and ready to answer your calls and emails just as we always have been. Over time some of our reporting may look different and our name will change, but the high touch consultative service you have been used to and expect will be the same.
Long Term Part Time Employees in operation
January 1, 2024 was the first time a participant could enter your plan as a long term part time employee (LTPT). At that time entry was based on working three eligibility computation periods (ECP’s) with at least 500 hours. Then on January 1, 2025, this changed to only require 2 ECP’s with at least 500 hours worked for entry. Thus LTPT is no longer just a concept we talk about but a reality for many of our clients.
By law, retirement plans must allow a LTPT employee to make their own contributions, but that is where the requirement ends. Plans do not have to provide any employer contributions for LTPT employees. Our default is that you will not provide LTPT employees with anything but the option to defer however we are seeing that some clients are providing employer contributions as well. Often this happens because payroll was not set up to handle an LTPT differently so once a deferral is made a match starts. If your intention is to only allow deferrals for this group of employees, please be sure your payroll is set up to handle this.
If you do provide an employer contribution to LTPT employees or if an LTPT eventually meets plan eligibility requirements and becomes eligible for employer contributions and thus becomes a former LTPT, vesting is handled differently if your plan counts Years of Service based on hours worked. Typically an employee must work 1000 hours to earn a Year of Vesting Service, but an LTPT employee only has to work 500 hours to earn a Year of Vesting Service. This results in someone vesting in Employer contributions faster than if they were not or never had been an LTPT employee.
When we amend your plan for SECURE 2.0 to include the LTPT provisions we will need to include language allowing them to receive Employer contributions if that is what you are doing in your plan; otherwise they will be excluded by default. We are documenting how we see the plan handling this provision, so we are ready for that amendment.
Catch-Up Contributions Changes in 2026
This newsletter has had several articles on the change SECURE 2.0 brought to the table that all catch-up contributions must be made as Roth for High Paid Individuals (HPI’s). HPI is not a term used in the law but one coined in the industry to name this group of people. Since we are getting a lot of questions and are hearing that some payroll companies are asking for guidance, we are highlighting this topic again.
Who is an HPI? Anyone who has FICA wages (Box 3 of W-2) in 2025 that exceed 145,000 is considered an HPI in 2026. This limit will index for inflation in the future. If you don’t have FICA wages this does not affect you. This would include Partners or Sole Proprietors with only self-employment income reported on a K-1.
Your Plan must allow for Roth contributions or HPI’s will not be able to make catch up contributions. Roth contributions must be made available universally and not only for catch-up contributions. We have worked with several clients to add Roth, but if you think your Plan may still need to add this feature please contact your Compliance Consultant.
Participants do not have to elect Roth for their catch-up, the Plan can provide the HPI’s are deemed to have elected this as required by law. Participants of course can elect to stop their deferral and not make the catch-up contribution if they do not want Roth contributions. Additionally if an HPI deferred Roth early in the year of at least the catch-up limit and then switches to pre tax contributions, those early Roth dollars will count towards the Roth requirement for catch up contributions even though when made they were not catch-up contributions.
Another nuance of this requirement being based on FICA wages is that if multiple common law employers participate in your Plan, this requirement is applied on a per Employer basis and not by aggregating an individual’s FICA wages from all employers in the plan. Likewise if one of your employees has income from another unrelated employer during the year, you do not consider those wages, only FICA wages paid by your company.
Earlier this year the IRS issued the proposed regulations for this requirement, and they have not yet finalized them. Once they are final, if changes are made, we will be sure to communicate those changes but, in the meantime, you can rely upon the proposed regulations which are what this article is based upon.
Please be sure you know how your payroll company is handling this requirement. Will they automatically switch to Roth when the limit is hit for an HPI or do you need to make that change?
Meet the Staff
Sandi Vriesema – Compliance Consultant
Sandi joined Blue Chip November 5, 2024 and has 25 years of experience as a 401(k) compliance consultant. Before working as a compliance consultant, she worked as a paralegal and a consultant preparing defined contribution plan documents and amendments. Sandi lives in Whitinsville, MA and has four grown children and four young grandsons. In her time off, she enjoys watching her grandsons and playing her violin and singing in her church’s praise team. She also enjoys hiking, biking, reading, and watching Mets baseball games (when they win).