Employer contributions as Roth

[ACK]

If a plan already allows in-plan Roth rollovers from all sources, what would be the benefit (or downside) of adding the new Secure Act option to allow Employer contributions as Roth?  It seems like the outcome in either case is exactly the same.  Am I missing something?  thanks!

[Belgarath]

One item that occurs is that the in-plan Roth rollover would normally require a distribution fee to be charged to the participant's account. That said, I'm not sure most employers will be willing to go through the hassle with payroll/payroll providers, reporting, etc. Our clients already have enough trouble just properly allocating pre-tax and Roth deferrals to the correct account - I can only imagine the screw-ups if they attempted employer contributions as Roth.

I'm not a fan of the concept.

[Peter Gulia]

Many practitioners have advised there is little need for a plan to provide nonelective or matching contributions as Roth contributions if the plan lets a participant direct an in-plan rollover to Roth. And many dislike some complexities of Roth-ing nonelective or matching contributions.

Yet, there are employers that, having heard those explanations, still want to provide the new Roth nonelective or matching contribution.

The outcomes might not be exactly the same because of timing and investment markets’ differences. Those participants who direct an in-plan rollover to Roth might do it only once a year. The new feature lets a contribution be Roth-classified when the contribution is allocated. If the employer’s nonelective or matching contribution is allocated more often than once a year, the timing differences might matter.

And even if timing and investment differences are meaningless, some employers feel strongly that participants want the convenience of Roth-ing from payroll, not needing to remember to instruct periodic rollovers.

One lawyer advised a plan sponsor not to adopt Roth contributions (other than rollover contributions) beyond the currently provided elective deferrals until:

The recordkeeper makes a service agreement obligation to credit the contributions according to what would become the plan’s provisions.

The recordkeeper delivers to the employer and to the plan’s administrator an independent certified public accountant’s report explaining the recordkeeper’s procedures and controls for crediting those contributions.

The employer has designed and tested its procedures and controls for allocating the nonelective and matching contributions between non-Roth and Roth contributions.

The employer has designed and tested its procedures and controls for communicating to the recordkeeper the instructions for non-Roth and Roth nonelective and matching contributions.

This is not advice to anyone.

[Gina Alsdorf]

Downside, matching could not be subject to vesting as ROTH. IMHO that is the big one.

[401king]

Anyone know if the EE election applies to all ER contributions, or specific sources? The "100% vested" caveat could prevent Safe Harbor contributions from being made as Roth if it's an all-or-nothing option. But giving EEs the option for each ER source is...not helpful. (Disc NEC, SH NEC, Disc Match, SH Match, QNEC, QMAC...).