Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

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Topic Author
blastoff
Posts: 250
Joined: Thu Jan 19, 2012 12:04 pm

Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by blastoff » Mon Jul 08, 2019 7:48 am

Hi all.

I would like to be able to do a mega-backdoor roth.

My new employer doesn't offer in-service distributions, or after tax contributions for their 403b.

Has anyone gotten their employer to modify the plan to allow a mega backdoor Roth? Is this even feasible? What are the key considerations and who to talk to? I can't imagine there is much of a cost to the employer to offer this.

If it matters, this is a large hospital.

mervinj7
Posts: 917
Joined: Thu Mar 27, 2014 3:10 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by mervinj7 » Mon Jul 08, 2019 11:18 am

blastoff wrote:
Mon Jul 08, 2019 7:48 am
Hi all.

I would like to be able to do a mega-backdoor roth.

My new employer doesn't offer in-service distributions, or after tax contributions for their 403b.

Has anyone gotten their employer to modify the plan to allow a mega backdoor Roth? Is this even feasible? What are the key considerations and who to talk to? I can't imagine there is much of a cost to the employer to offer this.

If it matters, this is a large hospital.
I recently asked my Mega-Corp employer to add a mega backdoor Roth option and they refused after consideration by the 401k committee. The stated reason was that they would not pass the IRS required testing measurements due to the modified plan favoring highly compensated employees. Probably not what you wanted to hear but you should be aware of the counter-arguments. I was not at the time I made my proposal.

THY4373
Posts: 1078
Joined: Thu Mar 22, 2012 3:17 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by THY4373 » Mon Jul 08, 2019 11:34 am

My employer is thankfully one that offers it so I haven't had to ask. That said I seem to recall somebody posting in a relatively recent (last few months) mega-backdoor thread that they had been successful. Maybe they will post here or perhaps search recent threads on this to see if you can find the post. My guess, not to dissuade you, is this will be an uphill battle at most organizations. I have explained the mega-backdoor process to many smart folks and very few "get it". Maybe I just suck at explaining it :-).

Topic Author
blastoff
Posts: 250
Joined: Thu Jan 19, 2012 12:04 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by blastoff » Mon Jul 08, 2019 1:04 pm

mervinj7 wrote:
Mon Jul 08, 2019 11:18 am
blastoff wrote:
Mon Jul 08, 2019 7:48 am
Hi all.

I would like to be able to do a mega-backdoor roth.

My new employer doesn't offer in-service distributions, or after tax contributions for their 403b.

Has anyone gotten their employer to modify the plan to allow a mega backdoor Roth? Is this even feasible? What are the key considerations and who to talk to? I can't imagine there is much of a cost to the employer to offer this.

If it matters, this is a large hospital.
I recently asked my Mega-Corp employer to add a mega backdoor Roth option and they refused after consideration by the 401k committee. The stated reason was that they would not pass the IRS required testing measurements due to the modified plan favoring highly compensated employees. Probably not what you wanted to hear but you should be aware of the counter-arguments. I was not at the time I made my proposal.

Thanks for replying. Useful to know.

Topic Author
blastoff
Posts: 250
Joined: Thu Jan 19, 2012 12:04 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by blastoff » Mon Jul 08, 2019 1:09 pm

THY4373 wrote:
Mon Jul 08, 2019 11:34 am
My employer is thankfully one that offers it so I haven't had to ask. That said I seem to recall somebody posting in a relatively recent (last few months) mega-backdoor thread that they had been successful. Maybe they will post here or perhaps search recent threads on this to see if you can find the post. My guess, not to dissuade you, is this will be an uphill battle at most organizations. I have explained the mega-backdoor process to many smart folks and very few "get it". Maybe I just suck at explaining it :-).
Uphill battle is probably right.

I need to look up competitive hospitals as well and might pursue that angle. If one of them offers it, then I might have a better shot. The place I'll be working likes to be the best, and routinely competes with several others. If you told them hospital X now has clocks that have 25 hours a day, you wouldn't be surprised to see 26 hour clocks in the hallway a week later.

I am coming from 403/457 land, so have lost significant retirement space. I knew this all going in.
Last edited by blastoff on Mon Jul 08, 2019 6:53 pm, edited 1 time in total.

ThisTimeItsDifferent
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Joined: Sat Jan 31, 2015 2:51 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by ThisTimeItsDifferent » Mon Jul 08, 2019 2:05 pm

My mega cap employer added the mega backdoor Roth capability, with automatic conversions, a year or two after I requested it.

TrollToll
Posts: 4
Joined: Mon Feb 12, 2018 9:24 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by TrollToll » Mon Jul 08, 2019 2:32 pm

We just got the Mega Backdoor option last week! A few coworkers/friends and I emailed HR about a year ago asking for it. They responded saying they already have looked into it, but were concerned about low earners not using it. I let them know that I was one of those "low earners" and would use it, but of course I'm just one in a sea of people.

I also just found out that my company's definition of highly compensated employee is over $200k. Wow.

I doubt my email was the cause for the change, but maybe it helped. My guess is that someone higher up has been pushing for it. I work in life insurance, so I imagine we have a lot of finance-focus people who are more likely to appreciate this benefit.

I have no advice for you. Good luck!

Ophiuchus
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Joined: Tue Jun 25, 2019 10:10 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by Ophiuchus » Mon Jul 08, 2019 9:52 pm

blastoff wrote:
Mon Jul 08, 2019 7:48 am
Hi all.

I would like to be able to do a mega-backdoor roth.

My new employer doesn't offer in-service distributions, or after tax contributions for their 403b.

Has anyone gotten their employer to modify the plan to allow a mega backdoor Roth? Is this even feasible? What are the key considerations and who to talk to? I can't imagine there is much of a cost to the employer to offer this.

If it matters, this is a large hospital.
From a small hospital.

Talking to the CEO
"Can we get the mega back door roth option"

"What is that?"

explain what it is

"Have a look at our retirement plans and set it up"

We now have lower cost index funds and megaback door roth

LawyersGunsAndMoney
Posts: 133
Joined: Tue Aug 02, 2016 2:00 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by LawyersGunsAndMoney » Tue Jul 09, 2019 8:54 am

I tried to add it in when my SMB (12 employees) switched providers a few years back. Was told by our financial advisor and TPA that we'd never pass compliance testing if we did so.

I regret not pushing them for a more detailed answer.

WhiteMaxima
Posts: 1897
Joined: Thu May 19, 2016 5:04 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by WhiteMaxima » Tue Jul 09, 2019 10:15 am

I have done maga aft-tax for a couple of years. forced saving make monthly budget very tight.

downshiftme
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Joined: Sun Mar 11, 2007 6:11 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by downshiftme » Tue Jul 09, 2019 7:12 pm

I've tried several times as we have made changes to the plan and providers over the years. Have not been successful and the usual reasons cited have been related to compliance testing required. We did eventually adopt a safe harbor plan, but apparently a mega backdoor provision requires additional compliance testing that corporate is sure we could not pass. I'm trying to press the idea that it's an employee retention issue as highly qualified employees can move to companies that do offer the provision, but so far not getting any traction with that.

usagi
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Joined: Wed Jun 05, 2019 1:08 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by usagi » Tue Jul 09, 2019 11:53 pm

Years ago, FIDO took and RFE from me and acted as an advocate to alter the 401K plan with my employer. About every 6 months they followed up on the status, it took about 4 years but it finally came to fruition. My point is, you may gain more traction working with the folks who administer the plan vs your actual company.

mervinj7
Posts: 917
Joined: Thu Mar 27, 2014 3:10 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by mervinj7 » Wed Jul 10, 2019 12:29 am

usagi wrote:
Tue Jul 09, 2019 11:53 pm
Years ago, FIDO took and RFE from me and acted as an advocate to alter the 401K plan with my employer. About every 6 months they followed up on the status, it took about 4 years but it finally came to fruition. My point is, you may gain more traction working with the folks who administer the plan vs your actual company.
What's the process to start a RFE? Do I bypass the company 401k rep?

Btags84
Posts: 9
Joined: Sun Dec 02, 2018 9:28 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by Btags84 » Wed Jul 10, 2019 7:03 am

Hello, I just changed this at my employer last year. While you might fail the compliance testing all that happens is the contributions are given back to the highly compensated employees and taxes are taken out as if the after-tax contribution and conversion never took place. And that assumes you fail by a large enough margin that ALL of the conversions are undone. It is possible that for example if you converted $10k then maybe at least $3k can stay in and you get the $7k back and taxes get taken out. So the compliance explanation is not a big hurdle to overcome. My guess is most don't understand it or want to put in the work to get it changed. At least this was my understanding based on discussions regarding this very issue last year when considering making this change. I would encourage the HR dept to ask their record keeper what the impact on the plan would be if the compliance fails to confirm basically that the contributions are simply reversed. Should not be a big deal.

usagi
Posts: 21
Joined: Wed Jun 05, 2019 1:08 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by usagi » Wed Jul 10, 2019 1:59 pm

mervinj7 wrote:
Wed Jul 10, 2019 12:29 am
usagi wrote:
Tue Jul 09, 2019 11:53 pm
Years ago, FIDO took and RFE from me and acted as an advocate to alter the 401K plan with my employer. About every 6 months they followed up on the status, it took about 4 years but it finally came to fruition. My point is, you may gain more traction working with the folks who administer the plan vs your actual company.
What's the process to start a RFE? Do I bypass the company 401k rep?
I did not work at all with the company's 401K rep. I went through the plan custodian who initiated the request, provided they whys and the benefits. I remember I started out instant messaging and then they gave me a phone number to talk to a representative live. I explained what i wanted and he said the plan did not support it at present And I asked about how we could make a formal request to change it and that conversation started the process. Whom the cast actually worked for is beyond my knowledge but I got the idea they were FIDO employees all the way through, though I could be mistaken.

Bfwolf
Posts: 1907
Joined: Thu Oct 14, 2010 11:19 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by Bfwolf » Wed Jul 10, 2019 2:39 pm

Btags84 wrote:
Wed Jul 10, 2019 7:03 am
Hello, I just changed this at my employer last year. While you might fail the compliance testing all that happens is the contributions are given back to the highly compensated employees and taxes are taken out as if the after-tax contribution and conversion never took place. And that assumes you fail by a large enough margin that ALL of the conversions are undone. It is possible that for example if you converted $10k then maybe at least $3k can stay in and you get the $7k back and taxes get taken out. So the compliance explanation is not a big hurdle to overcome. My guess is most don't understand it or want to put in the work to get it changed. At least this was my understanding based on discussions regarding this very issue last year when considering making this change. I would encourage the HR dept to ask their record keeper what the impact on the plan would be if the compliance fails to confirm basically that the contributions are simply reversed. Should not be a big deal.
I could understand employers wanting to avoid this situation with their employees. But maybe a potential way around it would be to put a cap on after-tax contributions to make it likely to pass compliance testing. Don't let anybody contribute more than 3% per paycheck after-tax for example. Then if the company finds it's still easily passing the compliance test, it can increase the % in future years. It would seem that getting the after-tax plus Roth conversion option put into the 401k plan is the hard part to convince your employer. Changing the % cap later is trivial by comparison. So make it easy for them to say yes to the hard part.

THY4373
Posts: 1078
Joined: Thu Mar 22, 2012 3:17 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by THY4373 » Wed Jul 10, 2019 3:22 pm

I am pleasantly surprised at the number of successes reported here but great to see.

Topic Author
blastoff
Posts: 250
Joined: Thu Jan 19, 2012 12:04 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by blastoff » Wed Jul 10, 2019 6:30 pm

Thanks to all that have replied. Interesting to hear the different experiences!

I have never had access to mega backdoor Roth. But I am aware of it and loosely know the mechanics of it, but not in great detail.

If I wanted to get a mega backdoor Roth option in the plan, what specifically needs to be implemented? (What should one ask for?).

In service distribution and after tax contributions?

Bfwolf
Posts: 1907
Joined: Thu Oct 14, 2010 11:19 am

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by Bfwolf » Wed Jul 10, 2019 11:10 pm

In-service distribution is one way of going about it, but it seems the easier method that some plans are gravitating toward is in-plan Roth conversion. With the click of a button you convert your after-tax $s in your 401k into your Roth 401k sub-account. I know of at least one employer who has embraced the strategy with such gusto that they allow people to opt in to automatic in-plan conversions, i.e. every paycheck their after tax contributions are automatically immediately converted to their Roth 401k. Hence they never have earnings on the after tax $s that they'd have to pay ordinary income tax on.

HawkeyePierce
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Location: New Zealand

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by HawkeyePierce » Wed Jul 10, 2019 11:24 pm

Bfwolf wrote:
Wed Jul 10, 2019 2:39 pm
Btags84 wrote:
Wed Jul 10, 2019 7:03 am
Hello, I just changed this at my employer last year. While you might fail the compliance testing all that happens is the contributions are given back to the highly compensated employees and taxes are taken out as if the after-tax contribution and conversion never took place. And that assumes you fail by a large enough margin that ALL of the conversions are undone. It is possible that for example if you converted $10k then maybe at least $3k can stay in and you get the $7k back and taxes get taken out. So the compliance explanation is not a big hurdle to overcome. My guess is most don't understand it or want to put in the work to get it changed. At least this was my understanding based on discussions regarding this very issue last year when considering making this change. I would encourage the HR dept to ask their record keeper what the impact on the plan would be if the compliance fails to confirm basically that the contributions are simply reversed. Should not be a big deal.
I could understand employers wanting to avoid this situation with their employees. But maybe a potential way around it would be to put a cap on after-tax contributions to make it likely to pass compliance testing. Don't let anybody contribute more than 3% per paycheck after-tax for example. Then if the company finds it's still easily passing the compliance test, it can increase the % in future years. It would seem that getting the after-tax plus Roth conversion option put into the 401k plan is the hard part to convince your employer. Changing the % cap later is trivial by comparison. So make it easy for them to say yes to the hard part.
This is what my employer does. Our after-tax contributions are capped at 10% of cash compensation.

decapod10
Posts: 228
Joined: Thu Dec 28, 2017 6:46 pm

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by decapod10 » Thu Jul 11, 2019 2:25 pm

HawkeyePierce wrote:
Wed Jul 10, 2019 11:24 pm
Bfwolf wrote:
Wed Jul 10, 2019 2:39 pm
Btags84 wrote:
Wed Jul 10, 2019 7:03 am
Hello, I just changed this at my employer last year. While you might fail the compliance testing all that happens is the contributions are given back to the highly compensated employees and taxes are taken out as if the after-tax contribution and conversion never took place. And that assumes you fail by a large enough margin that ALL of the conversions are undone. It is possible that for example if you converted $10k then maybe at least $3k can stay in and you get the $7k back and taxes get taken out. So the compliance explanation is not a big hurdle to overcome. My guess is most don't understand it or want to put in the work to get it changed. At least this was my understanding based on discussions regarding this very issue last year when considering making this change. I would encourage the HR dept to ask their record keeper what the impact on the plan would be if the compliance fails to confirm basically that the contributions are simply reversed. Should not be a big deal.
I could understand employers wanting to avoid this situation with their employees. But maybe a potential way around it would be to put a cap on after-tax contributions to make it likely to pass compliance testing. Don't let anybody contribute more than 3% per paycheck after-tax for example. Then if the company finds it's still easily passing the compliance test, it can increase the % in future years. It would seem that getting the after-tax plus Roth conversion option put into the 401k plan is the hard part to convince your employer. Changing the % cap later is trivial by comparison. So make it easy for them to say yes to the hard part.
This is what my employer does. Our after-tax contributions are capped at 10% of cash compensation.
Ours is capped at ~$15k, though mainly to prevent going over the aggregate cap. But it is possible to set a $ limit rather than a % cap as well.

JediMisty
Posts: 218
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Location: Central NJ

Re: Mega backdoor Roth:. Anyone got their employer to change plan to allow it?

Post by JediMisty » Thu Jul 11, 2019 2:45 pm

My legacy megacorps employer offered it. Was bought by another megacorps who didn't offer it. I joined the chorus of folks from the legacy megacorps requesting it before the purchase transaction moved us all to the new plan. We got it including in plan Roth conversions available and up to 90% of compensation allowed into the plan. That and low ER index funds administered by Vanguard gives us the unicorn of 401ks. I'm smitten by our 401k., so maxing the plan... :sharebeer

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