Removing Roth Option

I am a TPA with a small employer (5 participants), and they would like to remove the Roth as an option.  There is currently 1 participant making Roth deferrals.  I understand that we can remove the Roth provision, but is there a way to 'grandfather' in the 1 participant who utilizes it so she can keep making Roth deferrals?  I think I know my answer, but want to check with you guys.

BTW (the story behind the question) - there has been a lot of hassle in cashing out a participant who had a total of $1300 in the plan, some of which was Roth.  It has been a pain in the rear-end explaining all the nuances to the accountants (ha!) and investment advisor, as you all know, and even harder on the plan sponsor, so she has asked if we can just discontinue the Roth.  The one lady who is still employed there and makes Roth def's may not be pleased if we remove it so we're trying to allow only her to do it.

Thank you!

You can not offer ROTH to a select group.

Thank you, I knew it was a long shot.

I disagree with Lou S.

For a 403(b) plan, if employees can make Roth 403(b) contributions, then all employees of that particular employer (ignoring the controlled group and affiliated service group rules) must be allowed to make Roth 403(b) contributions.  Treas. Reg. Section 1.403(b)-5(b)(1)(last sentence).

For a 401(k) plan, the plan document may specify that some and not all eligible employees may make Roth 401(k) contributions.  It is subject to benefit, right or feature testing.  Treas. Reg. Section 1.401(k)-1(a)(4)(iv)(B)(second sentence).

Interesting, so maybe you can do it. The question I have though is if you do fail BRF how could you possible correct? It's not like you can go back and give people the right to make ROTH retro actively.

Lou:

If you fail the BRF (and catch it within 9½ months after year end), then you can probably extend Roth availability to enough NHCEs to pass the BRF test prospectively and it is treated as correcting the BRF failure for the plan year you are testing.  That's the way most BRF corrections work with the prominent exception of an available match rate failure which requires some corrective contributions.

It still might not make good plan design sense, but you and I aren't close enough to the original poster's situation to evaluate that.

Thank you BOTH for your input.  I really appreciate the thought given.

Yes, you can remove the Roth provision, as the ability to make Roth deferrals is not a protected benefit. However, if some participants were allowed to continue making Roth deferrals and others were not, then I agree we have a BRF issue. 

If the plan chooses to eliminate Roth, if the participant utilizing the Roth deferrals is eligible for in-service withdrawals, perhaps a happy medium would be to allow her to periodically take in-service withdrawals and rollover into a Roth IRA. I'm not a CPA and don't administrate IRAs, so I don't know if there is a limit on the amount you can rollover each year or how that would affect her taxes, but something she can consider with her CPA and financial advisors.