Debate: Should Partially Vested Workers Be Able to Take Matching Contributions as Roth?

Byrnes: Allowing Roth employer-matching contributions for partially vested participants would only serve to further complicate an already complicated system. Employers would be required to calculate each participant’s vested amount and ensure that only that percentage of any employer-matching contribution could be treated as a Roth. They’d further have to communicate these rules to employees, which would likely make the system even more complex for everyone involved. 

Bloink: We should be encouraging employees to diversify the types of accounts that they will be able to draw upon during retirement. Roth accounts are extremely valuable, but, unfortunately, many individuals are focused on maximizing their pretax contributions to the extent possible. The new Secure 2.0 changes provide an extremely valuable option, and we should be focused on making that option available in the most widespread manner possible.

Byrnes: In reality, because this is an optional provision, if we overcomplicate the rules governing this provision, it actually makes it less likely that plans will offer the Roth matching option in the first place. 

Bloink: Allowing partially vested individuals to elect to treat employer-matching contributions as Roth contributions would tend to give lower-income participants access to a Roth option that may not otherwise be available. There’s no logical reason to require that employees wait until they’re fully vested in their contributions to be given access to the Roth match option.

Byrnes: We also have to remember that this restriction was put into place for a reason. Employees often aren’t fully vested in employer-matching contributions immediately for a reason. The employer imposes vesting restrictions to avoid a situation where they contribute the matching amount only to have the employee quit. If we allowed partially vested participants to pay taxes on their employer match, we could find situations where the employee ends their employment after already paying taxes on employer contributions that aren’t fully vested.

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