SECURE 2.0 ADP Testing and Roth Catch-Up: What Non-Safe Harbor Plans Need to Prepare For
Retirement plan compliance is becoming more interconnected across plan design, testing, and participant outcomes. While safe harbor plans simplify many requirements, non-safe harbor plans introduce additional layers of complexity, especially under SECURE 2.0.
For employers operating without a safe harbor structure, the interaction between ADP testing and Roth catch-up rules will require closer attention starting in 2026 and beyond.
Safe Harbor vs. Non-Safe Harbor: Why It Matters
How Safe Harbor Plans Simplify Compliance
Safe harbor plans are designed to automatically satisfy certain nondiscrimination requirements. As Christopher Tipper explains, “For 2026, the plan does not have to do ADP testing in 2027.” This removes a major compliance burden and reduces the likelihood of corrective actions tied to testing failures.
What Changes Without Safe Harbor
When a plan is not safe harbor, that simplicity disappears. Employers must complete ADP testing to ensure that contributions between highly compensated and non-highly compensated employees remain balanced. This introduces variability and the potential for post-year adjustments that can directly impact participants.
Who Is Impacted Under the New Rules
Identifying the Affected Group
The focus remains on a specific group of employees. Those who earned over $145,000 in W-2 wages in 2025 and were born in 1976 or earlier fall under the Roth catch-up requirement. These individuals are categorized as Highly Paid Individuals (HPIs) and are subject to additional contribution rules.
Additional Catch-Up for Older Employees
Certain employees, particularly those born between 1963 and 1966, may qualify for enhanced catch-up contribution limits. This creates an added layer of complexity when combined with Roth requirements and testing outcomes, as contribution classifications may shift after the fact.
How ADP Testing Interacts with Catch-Up Contributions
Testing Happens After the Plan Year
For non-safe harbor plans, ADP testing occurs after the close of the plan year. In this case, testing conducted in 2027 evaluates contributions made in 2026. This timing creates a disconnect between when contributions are made and how they are ultimately classified.
Plan Documents Control the Outcome
One of the most important distinctions is that contribution classification is not determined by payroll systems or participant elections. “Statute and plan document determines what is catch-up, not your payroll vendor and not the employee participant,” Christopher explains.
This means that even if contributions are initially processed as pre-tax, they may be reclassified later based on testing results.
What Happens When a Plan Fails ADP Testing
Reclassification of Contributions
If a non-safe harbor plan fails ADP testing, adjustments are required. For Highly Paid Individuals who contributed below the standard deferral limit, a portion of their pre-tax contributions may be reclassified as catch-up contributions.
Under SECURE 2.0, for HPIs, catch-up contributions must be treated as Roth. This creates a chain reaction where pre-tax contributions are effectively converted into Roth contributions after the plan year has ended.
The Downstream Impact on Participants
This reclassification does not happen in isolation. It triggers reporting consequences in future years. Participants may receive a Form 1099-R reflecting these adjustments, even though the original contributions were made in a prior year.
As Christopher outlines, this can result in participants receiving tax documentation in 2028 for contributions made in 2026, based on eligibility determined from 2025 income and age criteria.
Why Timing and Coordination Matter
Multiple Years, One Decision Chain
This process spans multiple years:
- 2025 determines HPI status
- 2026 is when contributions are made
- 2027 is when ADP testing occurs
- 2028 is when tax reporting reflects corrections
Each step builds on the previous one, which increases the importance of getting the structure right upfront.
Where Employers Can Run Into Trouble
Without a clear understanding of how these rules interact, employers may face:
- Unexpected contribution reclassifications
- Participant confusion around tax treatment
- Increased administrative complexity
- Greater reliance on correction processes
These issues are not caused by a single error, but by misalignment across plan design, testing, and execution.
Setting Non-Safe Harbor Plans Up for Success
Employers operating non-safe harbor plans need to take a more proactive approach to managing compliance under SECURE 2.0. This includes understanding which employees qualify as HPIs, how catch-up contributions will be treated, and how ADP testing outcomes may impact contribution classifications after the fact.
Ensuring that plan documents are aligned with current rules, and that payroll and recordkeeping systems can support these dynamics, is essential to reducing friction.
Moving Forward with a More Connected Plan Strategy
The interaction between ADP testing and Roth catch-up rules highlights how retirement plan management is becoming more interconnected across time, systems, and stakeholders. Decisions made during the plan year are no longer final. They are subject to testing, reclassification, and reporting in the years that follow.
This is where coordinated oversight becomes critical. Employers need partners who can connect plan design, compliance testing, and operational execution into a single, aligned strategy.
As these requirements continue to evolve, organizations that prioritize alignment, visibility, and proactive planning will be better positioned to manage complexity and deliver consistent outcomes for both the business and its participants.
