“In Good Faith” Is Not a Free Pass: What Plan Sponsors Get Wrong About Roth Catch-Up

The Misconception That Could Cost You

When the final regulations for Roth catch-up contributions dropped on September 15th, a lot of plan sponsors had the same reaction.

“We’ve got more time. We’re fine.”

That interpretation is where problems start.

The inclusion of “good faith” language has created real confusion in the market. It is being read as a blanket grace period. A hall pass. A way to push everything off until 2027 and call it a strategy.

That is not how regulators see it. And if your plan is treating it that way, you are setting yourself up for corrections, operational headaches, and compliance exposure that could have been avoided entirely.

What “Good Faith” Actually Means

“Good faith” does not mean doing nothing.

It does not mean ignoring the rules, waiting for clarity, or hoping your vendors figure it out without your involvement. As Christopher Tipper puts it plainly: “Completely ignoring the rules is not the definition of in good faith.”

Good faith means you are actively trying to comply, even if execution is not perfect yet. It shows up in situations like these:

Legitimate Good Faith Scenarios

A payroll system error sent Roth-taxed deferrals to the wrong source. Contributions were taxed correctly as Roth but ended up in the pre-tax source at the recordkeeper due to a configuration issue. The employer caught it and corrected it.

An HPI was missed early in the year. The first deferral for a highly paid individual went in as pre-tax instead of Roth catch-up, but was identified and fixed once discovered.

Participant notice language fell short. A genuine attempt was made to notify affected HPIs, but the wording did not meet the regulatory standard. Steps were taken to update and clarify communication.

Edge case misclassification. As Christopher notes: “Somebody accidentally applied the HPI rules to partners and members of an LLP who were not HPIs. I think that is an example of in good faith.”

These are implementation challenges. They happen. What separates them from a compliance problem is that the employer is engaged, aware, and working to correct the issue.

That is what good faith looks like.

What “Good Faith” Does Not Cover

There is a line that too many plan sponsors are crossing without realizing it.

Good faith does not cover inaction. “Just completely ignoring things, pretending to be an ostrich until January 1st, 2027, we do not feel is in good faith.”

Waiting to see what happens is not a strategy. It is a liability. Regulators expect to see movement, effort, and documentation that the plan is working toward alignment with the rules. Passive silence does not meet that standard, no matter how the final reg language gets interpreted.

Why This Is More Complex Than It Looks

Roth catch-up requirements introduce new coordination demands across every layer of your plan:

• Payroll systems
• Recordkeepers
• Plan documents
• Participant classifications tied to compensation thresholds

Even in a straightforward single-employer plan, there are multiple points where things can go wrong. Add bonuses, mid-year compensation changes, or misclassified employees, and the complexity compounds fast.

Issues caught early are typically correctable. Issues that get ignored until year-end reconciliation are a different conversation entirely. By then you are not dealing with a simple fix. You are dealing with reprocessing, corrections, and potential reporting adjustments that eat time and resources no one budgeted for.

The IRS Rewards Effort

Here is what the history of IRS and DOL enforcement actually tells us.

“In general, the IRS and the Department of Labor look very kindly on people sincerely, desperately trying to fix things themselves before it is found out.”

That is not a loophole. That is the correction framework operating as designed. Identify the problem. Fix it quickly. Document the process. And make sure you have the right team in place to help you do it.

The firms that come out of this transition cleanly are not the ones who had a perfect implementation. They are the ones who stayed engaged, caught their own issues, and corrected them before someone else found them first.

You Are Running Out of Excuses

One of the more uncomfortable realities of this moment is how much information is already available.

Vendors are communicating. Recordkeepers are sending updates. Advisors are flagging changes. Industry groups are publishing guidance. AI tools will read documents aloud if that makes it easier.

As Katherine Tipper puts it: “When you say I don’t know, you are really saying I did not try.”

“You can not just walk around saying I had no idea. I just did not know that this was going to happen because all of the vendors, everybody else is communicating like mad on it.”

The information is there. Saying otherwise is not a defense. It is a choice.

And Katherine’s closing advice is about as plain as it gets: “Read what your vendors send you.”

What Plan Sponsors Should Be Doing Right Now

You do not need a perfect system today. You need forward movement.

Review your plan design. Confirm that Roth contributions and catch-up provisions are properly included and aligned with the 2026 requirements.

Talk to your payroll provider. Ask directly how they are handling Roth catch-up rules tied to compensation thresholds and whether their systems are ready.

Coordinate with your recordkeeper. Ensure contributions are being categorized correctly and that data is flowing cleanly between systems.

Validate employee classifications. Know who qualifies as an HPI and how compensation is being tracked throughout the year.

Document your efforts. Good faith is not just a mindset. It is a paper trail. If corrections were made, document when and how.

The Right Team Makes the Difference

This is not an area where passive support gets the job done.

Strong outcomes here require an engaged financial professional monitoring changes and guiding decisions, a payroll provider who understands retirement plan integration, a recordkeeper with systems built for Roth source tracking, and as Christopher puts it, “a retirement plan consultant, not your ordinary TPA off the street.”

If those pieces are not aligned, gaps form fast. And by the time those gaps surface, the easy fixes are already off the table.

The Bottom Line

The final regs gave the industry a framework for correcting honest mistakes. They did not give anyone permission to stop trying.

Good faith is not a loophole. It is a standard of behavior. And right now, the plan sponsors who are paying attention, asking questions, and making progress are the ones who will avoid the year-end scramble.

Because the real issue was never the rule itself. It was waiting too long to deal with it.