SECURE 2.0 - The Quiet Mistakes We're Seeing

Many retirement plans appear to be running smoothly. Contributions are processed. Statements are delivered. Employees rarely raise concerns.

Yet SECURE 2.0 is revealing an uncomfortable truth for many plan sponsors: 

A plan can function operationally while still carrying compliance risks that aren’t immediately visible.

Most of the issues we’re seeing are not the result of bad intent. They stem from being busy and from assuming that “handled” automatically means “protected.”

Across organizations, business owners sometimes:

• Aren’t clear who truly owns which plan decisions
• Can’t distinguish what was intentionally designed versus inherited or never revisited
• Lack a clear line between what is acceptable risk and what requires attention

SECURE 2.0 doesn’t eliminate flexibility, but it does increase the importance of clarity, documentation, and intentional oversight.

(Important context: SECURE 2.0 requirements vary by plan type (e.g., 401(k) vs. 403(b)), plan document language, and effective dates. Not every provision applies uniformly to every plan.)

The Quiet Mistakes We’re Seeing Business Owners Make

1. The "Box 3" Data Gap - (Roth Catch-Up Contributions)

This remains one of the most operationally complex SECURE 2.0 changes.

The Exposure
Effective for 2026 (subject to any applicable IRS transition relief), catch‑up contributions for employees with prior‑year FICA wages over $150,000 must be treated as Roth, provided the plan permits catch‑up contributions and the participant is otherwise eligible.  

The Operational Challenge
Many plan sponsors assume their recordkeeper automatically identifies who qualifies.
In practice: 

• Recordkeepers typically rely on plan compensation

FICA wages (Box 3) are usually housed in payroll systems ². Without deliberate coordination, the required data may never reach the recordkeeper.

The Risk

• If an impacted participant makes pre‑tax catch‑up contributions that are not designated as Roth once the rule is effective:
• The plan may experience an operational compliance failure, depending on the facts
• Corrections may require tax reporting adjustments and/or corrective transactions, depending on timing and provider capabilities

While correction programs may be available, addressing these issues after the fact can be administratively complex and disruptive.

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2. The LTPT “Ghost” - (Long‑Term Part‑Time Employees)

SECURE 2.0 shortened the long-term part-time (LTPT) service requirement for 401(k) plans from three consecutive years to two consecutive years with at least 500 hours of service per year, subject to applicable effective dates and the plan’s required counting rules³.  

The Exposure
Many organizations still operate using the familiar standard:
“1,000 hours in a year equals eligibility.”

As a result, they may fail to track hours for part time or seasonal employees who quietly cross the LTPT threshold.

The Nuance
LTPT eligibility primarily impacts elective deferral rights. Employer contribution eligibility may differ based on plan design, and technical exclusions apply (for example nonresident aliens without U.S. source income). Effective dates and counting rules also matter⁴.

The Risk
When an eligible employee is missed, corrections often involve:

• Retroactive plan entry
• A Qualified Non-Elective Contribution (QNEC) to address missed deferral opportunities
• Lost earnings

These are correctable issues, but rarely inexpensive ones.

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3. Forfeitures - When Balances Accumulate

Forfeiture handling is receiving increased attention in examinations. Not because forfeitures are inherently risky, but because plans must follow their own documents.

The Exposure

Allowing forfeiture balances to accumulate indefinitely as an informal offset for future employer contributions.
The Compliance Reality
IRS guidance and exam focus areas reinforce that forfeitures should be:

• Used in accordance with the plan document
• Applied within a reasonable, administratively feasible timeframe
• Not allowed to accumulate in a manner inconsistent with the plan’s forfeiture provisions or without documentation

Extended inactivity can raise questions about whether the plan is being operated as written^5.   

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4. Statement and Disclosure Delivery Drift

SECURE 2.0 did not simplify participant disclosure requirements, but it did push many plans to re-examine them.

Electronic delivery is permitted under Department of Labor safe harbor rules, but the standards vary based on participant status and the delivery method used.

Where Plans Get Exposed

• Terminated participants defaulting to electronic delivery without meeting safe harbor requirements
• Outdated delivery elections
• Assumptions that “everything is online” is sufficient

These issues frequently surface during participant complaints or DOL examinations ⁶. 

The “Obvious” Things That Quietly Create Risk

These aren’t technical errors. They’re governance blind spots.

1.    Roth Catch‑Up Design Decisions

Once the high earner Roth catch-up rule is effective, plans that do not offer Roth contributions may face a design choice:

• Add Roth functionality so impacted participants can continue making catch-up contributions, or
• Limit catch-up contributions for those impacted participants

This is a plan design decision, not an automatic prohibition, but it requires intentional action.

(Plan sponsors should consider participant impact and fiduciary documentation when evaluating whether to adopt this change.)

2.    The Force Out Threshold

SECURE 2.0 increased the permitted small balance force-out threshold to $7,000, if adopted in the plan document.

Many plans continue to maintain small inactive balances for former employees, potentially increasing administrative complexity and recordkeeping costs. Whether to adopt the higher threshold depends on plan design and participant considerations⁷.  

3.    The Inherited Plan Document

The SECURE 2.0 remedial amendment deadline is generally expected to be the end of the 2026 plan year for many plans, with exceptions and extensions for certain plan types.

In the meantime, many sponsors are:

• Operating under SECURE 2.0 provisions, while
• Still relying on pre-2022 signed plan documents

Outdated documentation may raise questions during audits or transactions, even when operations are otherwise sound⁸.

4.    Eligibility Failures

When an employee is improperly excluded, whether due to LTPT rules, auto enrollment, or eligibility tracking, the correction may include:

• A significant portion of the missed deferral opportunity
• Employer contributions, if applicable
• Lost earnings

The total cost depends on plan terms, compensation, and how quickly the issue is identified.

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