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To keep things on an equal footing I would expect the employer takes a deduction for the Roth contribution and the employee would be taxed on the amount of the contribution as if they had been paid that amount. It should be the same as if the employee gets paid by the employer and then the employee made their own Roth contribution.

For 401(k) plans that decide to allow Roth employer contributions, how, if at all, will the deduction rules change for those contributions? I'm thinking that traditional employers will still get a deduction, but what self-employed plan sponsors? Will it depend on the way the self-employed business is structured? Thanks for any thoughts.

The IRS has not issued guidance on how to handle Roth employer contributions. If the employer is required to add to the W-2s, this would create an administrative headache.

I haven't seen any answers yet either. I don't really understand the need for this when plans can just allow for in-plan Roth conversions.

As mentioned, the annually-increased penalties are mandated by law. See the The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, and also this EBSA fact sheet. Therefore, reducing the penalties would require a change in the law, which means an act of Congress. Any bill which proposes to reduce the penalties would have to be scored on its budget impact over 10 years. Reducing the penalties would reduce revenue, so it would have to be offset by some other revenue-raising measure. We got a taste of some of those revenue raisers in SECURE 2.0, including such unpopular additions as Roth catch-ups. What would you be willing to give up in order to reduce these penalties?

To return to youngbenefitslawyer’s question, before 2025 is not the relevant time for whether a “new” § 401(k) arrangement was “established”. The exception Internal Revenue Code of 1986 § 414A(c)(2)(A)(i) provides is for a § 401(k) arrangement “established” by December 28, 2022. An arrangement established after that date need not provide an automatic-contribution arrangement for 2023 or 2024, but must for 2025 meet Internal Revenue Code of 1986 § 414A(a)’s condition. That’s so if a § 401(k) arrangement became established, for example, on December 30, 2022—a closing date used for many 2022 transactions. If this afternoon one is an employee-benefits lawyer advising on a merger, acquisition, or other deal scheduled to close in seven business days on January 31, one must render her advice as best she can without waiting for Treasury’s or its Internal Revenue Service’s interpretation. Some lawyers rendered that advice in December 2022.