The start of 2026 introduces significant changes to employee benefit plans, impacting retirement and welfare programs. Notably, the Roth catch-up contribution requirement from the SECURE 2.0 Act will take effect, along with new limits for dependent care flexible spending accounts (FSAs). Employers must prepare for these adjustments to remain compliant and optimize their benefit offerings.
Roth Catch-Up Contributions Become Mandatory
Effective January 1, 2026, employees who wish to make catch-up contributions to their retirement plans and had FICA wages exceeding $150,000 in the prior year will need to contribute via Roth accounts. This requirement, initially set to roll out earlier, aims to increase tax revenue and provide enhanced retirement savings opportunities. Employers and plan vendors are encouraged to review their systems to ensure compliance with this new rule.
Employers should proactively engage with their plan vendors to determine what preparations have already been made and what actions still need to be taken prior to the deadline. The transition to Roth contributions marks a significant shift in how catch-up contributions are handled, necessitating careful planning.
Dependent Care FSA Limit Increases
Another critical update is the increase in the maximum federal limit for dependent care FSAs. Beginning in 2026, the limit will rise from $5,000 to $7,500, while the limit for married couples filing separately will increase from $2,500 to $3,750. This adjustment, the first since 1986, allows employees to allocate more funds toward their dependent care expenses.
Employers must ensure their dependent care FSA documentation reflects this change. Many plans may have outdated limits hardcoded into their structures. It is advisable to consult with FSA document providers to align plan documents with the new federal limit.
Compliance with Federal Legislation
Retirement plan sponsors must amend their plans to comply with the CARES Act, SECURE Act, and SECURE 2.0 Act by December 31, 2026. This requirement applies to most plans, excluding specific exceptions like governmental and collectively bargained plans. Employers should prepare by gathering documentation related to any discretionary provisions implemented under these acts to facilitate the amendment process.
For non-governmental 457(b) plans, it is crucial to have amended documents aligned with SECURE 2.0 by December 31, 2025. Tax-exempt entities that have not yet made these changes are urged to consult their plan document providers to ensure compliance.
State-Mandated Retirement Programs
Several states, including California, Colorado, and Connecticut, have enacted laws requiring employers to implement retirement programs for their employees or facilitate participation in state-sponsored plans. Employers operating in these jurisdictions must confirm whether they need to register or provide formal confirmation of their retirement programs.
With additional states considering similar mandates, employers must stay informed about evolving regulations to ensure compliance and avoid potential penalties.
Time for a Governance Review
The beginning of the year serves as a timely opportunity for employers to review their governance structures related to retirement and welfare benefit programs. Responsibilities for administration and investment decisions are often delegated to committees or specific employees, but documentation of these delegations may require updates.
Employers should assess whether their committees have undergone recent ERISA fiduciary training and when the last request for proposal was conducted for plan vendors. Given the increased fiduciary obligations under ERISA and the growing prevalence of litigation related to fiduciary breaches, conducting a thorough review of governance practices is prudent.
With these changes on the horizon, employers are encouraged to take proactive steps to ensure their employee benefit plans are compliant and optimized for the needs of their workforce in 2026. Consulting with legal and financial advisors can provide valuable insights into navigating these updates effectively.
