If you, as a plan sponsor of an employee stock ownership plan (ESOP), thought all was quiet in regard to required plan amendments, think again. Coming up in 2026 is the latest required “good faith amendment” deadline for qualified retirement plans because of more recent retirement plan legislation.
These latest upcoming amendments are a result of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the SECURE 2.0 Act. Whether your ESOP is an “individually designed plan” or an IRS “pre-approved non-standardized ESOP” (which is now allowed by the IRS and included as part of our Retirement Plan Consulting (RPC) Group’s plan document offerings in conjunction with the IRS’ adoption of the Ftwilliam plan document module), these good faith amendments must be adopted on or before December 31, 2026 to maintain the ESOP’s tax-qualified status.
These upcoming good faith amendments will include the following legislative changes:
- The increase in the required minimum distribution (RMD) age from 70½ to 73 (which became effective in 2023) as well as the final regulations issued by the IRS on July 19, 2024 with respect to the RMD rules.
- Although this is technically an optional discretionary amendment change, practically speaking, this amendment will include the increase in the cash-out limit from $5,000 to $7,000 (which became effective in 2024).
For KSOPs (ESOPs with a 401(k) feature) that include a Roth after-tax feature, there will be language that addresses the requirement that any catch-up contributions to the KSOP made by a participant who earned more than $150,000 in W-2 Wages (Box 3 of the W-2) in 2025 must be done on a Roth after-tax basis (which becomes effective in 2026).
- For KSOPs that include catch-up contributions (which practically speaking, is most, if not all, KSOPs), KSOPs wanting to include the super catch-up contribution rules for participants between the ages of 60 to 63 (which became effective in 2025 and most KSOPs will want to do) will have a specific reference to this feature within the good faith amendment.
Optional upcoming amendments and/or planning opportunities regarding ESOPs/KSOPs to consider include:
- Self-certification as to hardship distributions for KSOPs (which became effective in 2023).
- Allowing employees in a KSOP that offers Roth after-tax contributions to elect to convert employer contributions to Roth (which became effective in 2023). Note that the addition of such a feature will likely result in an increase in administrative costs associated with the KSOP because of the additional tracking required.
- While this is several years down the road, eligible S corporation shareholders may elect to defer up to 10% of the taxable gain under Section 1042 for ESOP transactions after December 31, 2027. Other §1042 requirements are still applicable.
The above is intended as a broad overview of what lies ahead as to ESOP plan changes and/or opportunities in 2026 and beyond. If you would like to discuss further any of the required upcoming ESOP amendments and/or planning opportunities detailed in this article, please reach out to a member of either the ESOP consulting practice or the RPC practice at Forvis Mazars.
Forvis Mazars Private Client services may include investment advisory services provided by Forvis Mazars Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by Forvis Mazars, LLP. The information contained herein should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies mentioned herein, may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.