Two Major Employee Benefit Changes for 2026: Employers, HR, and Fiduciaries; Prepare Now

2026 brings major employee benefit changes to employer-sponsored benefits. Two new regulations will directly impact employees and require careful preparation by HR, payroll, finance, and plan fiduciaries:

• 401(k) Catch-Up Contribution Rules Are Changing in 2026
  The SECURE 2.0 Act delayed the implementation of new rules from 2024 to January 1, 2026. Employers got two more years to prepare. The key change included that employees ages 50+ who earned more than $150,000 in wages (indexed for inflation) in the prior year must make all catch-up contributions on a Roth basis. This means high earners can only make Roth (after-tax) catch-up contributions, with tax-free growth. Employees below the wage threshold can keep making pre-tax or Roth catch-up contributions, depending on plan design.Why Catch-Up Contributions Matter
  Catch-up contributions help older employees save more, support later-life saving, and may reduce taxes in retirement. These contributions can add tens of thousands of dollars in tax-advantaged savings during the final decade of work.Who Is Impacted?
  The new rule affects:
  • Employees age 50 and older
  • Employees who earned more than the wage threshold (~$150,000, indexed) in the prior year
  • Employers who do not currently offer a Roth 401(k) (they will be required to add it)
  • Payroll providers who must ensure proper coding and taxationAn estimated 40% of catch-up contributors will be impacted by the mandatory Roth treatment, depending on workforce demographics.

  What HR and Plan Fiduciaries Need to Do Now
  To prepare for these Employee Benefit Changes, HR and fiduciaries should confirm the plan supports Roth contributions, coordinate with payroll, update employee communications, and review fiduciary duties. If your plan does not already include a Roth option, it must be amended before 2026.

  Coordinate Early With Payroll Providers
  Track age, prior-year wages, and correct tax treatment for catch-up contributions.

  Update Employee Education and Communication
  Many employees don’t understand the difference between pre-tax and Roth contributions.
  Explain changes in deductions, take-home pay, and Roth benefits simply.

  Review Fiduciary Responsibilities
  Plan sponsors must update documents, reflect changes, accept correct contributions, and ensure compliance.

  Failing to comply can lead to operational errors that require corrective filings. With these requirements in mind, it is equally important to consider upcoming changes to DCAP limits and the opportunities they present.

• DCAP Limits Are Increasing in 2026: More Tax Savings for Employees (and Planning Considerations for Employers)
  DCAPs allow employees to set aside pre-tax dollars to pay for childcare, preschool, before- and after-school programs, and certain eldercare expenses. The long-standing $5,000 household limit is expected to double in 2026, one of the most significant Employee Benefit Changes in recent years.Why This Matters: Childcare Is Increasingly Expensive
  The average annual cost of childcare in the U.S. is:
  • $10,000–$18,000 per year for one child
  • $20,000–$30,000+ for two children
  • Higher still in metro areas such as DC, Maryland, and VirginiaUnder the old $5,000 limit, families could only shelter a fraction of their childcare expenses from taxation. The new higher limit allows families to reduce their taxable income by a significantly greater amount.Tax Impact on Employees
  Increasing DCAP limits allows employees to:
• • Reduce federal income tax.
  • Reduce FICA taxes
  • Lower state income taxes (in most states)
  • Improve the affordability of childcare during high cost working years.For many, this means more annual tax savings. Employers also save on FICA as contributions increase.
    So, the employer payroll tax expense also decreases as employees contribute more.For example:
    If 50 employees each contribute an additional $3,000, the employer saves:
    $3,000 × 50 × 7.65% = $11,475 in payroll taxes saved
    Remember: employers directly benefit from these savings.A DCAP is a pay-as-you-go plan: employees are reimbursed only for what they’ve already contributed. Employers are not advancing funds, making DCAPs low-risk and cash-flow friendly.

What HR Needs to Do Before 2026

1. Update Plan Documents and Employee Elections
   Amend plans as needed to allow employees to use higher contribution limits.
2. Ensure payroll can process higher limits, apply taxes correctly, and cap contributions per household.
3. Communicate Early with Employees
   Parents must plan childcare budgets well in advance. Share new DCAP limits, example tax savings, and a pay-as-you-go reminder.
4. Consider DCAP as Part of a Holistic Family-Friendly Benefits Strategy
   Use DCAP changes to aid retention, promote equity, and reduce employee financial stress.

2026 Brings Real Savings and Real Administrative Change

These employee benefit changes offer real financial benefits but require careful planning by HR, fiduciaries, and payroll.

401(k) Catch-Up Changes

• High earners aged 50+ must make catch-up contributions to Roth.
• Employers must offer a Roth option.
• Payroll and compliance updates are required.
• Employee education is essential.

DCAP Limit Increase

• Employees with childcare expenses can save significantly more.
• Employers benefit from reduced payroll taxes.
• Payroll/plan updates are needed before 2026
• DCAP’s pay-as-you-go structure minimizes employer risk

Expert Guidance from TriBridge Partners

TriBridge Partners can help you review plan documents, coordinate with payroll, update employee communications, and ensure ongoing compliance before the new rules take effect. Contact our office today at 410-659-3723 or email Matthew Brashears at matthew.brashears@tribridgepartners.com for proactive support.