Data and Research

More Plan Sponsors Permitting Roth Conversions

The idea seems to be to help employees establish better tax-diversity in their retirement holdings—as well as more controlled and rational ways of spending down their collected wealth once their working life ends, SHRM says.

By John Manganaro editors@plansponsor.com | June 30, 2017

“Remaining Competitive in a Challenging Talent Marketplace,” a new research report from the Society for Human Resources Management (SHRM), takes a deep dive into the evolving retirement, health and wellness benefits offered by U.S. employers.

Overall, the research shows employers are closely and critically reconsidering the benefits they deliver to attract and retain employees. Particularly in the area of financial wellness programming and health savings accounts (HSAs), the research shows employee and employer preferences are rapidly evolving.

Of special interest to retirement plan sponsors will be the findings showing 90% of all employers surveyed today offer a traditional 401(k) or similar plan, while 55% offer a Roth 401(k) or similar plan. According to SHRM researchers, fully three-quarters of these traditional 401(k)-plan-offering organizations provide an employer match, while 40% match Roth 401(k) contributions.

This year, it appears many more organizations are permitting conversion of funds in a traditional 401(k) account into a Roth 401(k) account compared with 2013, and there has also been an increase in offering an informal phased retirement program. The big idea seems to be to help employees establish better tax-diversity in their retirement holdings—as well as more controlled and rational ways of spending down their collected wealth once their working life ends.

As SHRM researchers explain, a phased retirement program “provides a reduced schedule and/ or responsibilities prior to retirement, which can help facilitate the transition and transfer of knowledge for both the retiring employee and his or her co-workers.” Tied to this approach, to help provide lifetime income retirement solutions, some organizations are also offering in-plan annuity options (9%) or providing assistance for retirees to purchase out-of-plan annuities with in-plan assets (2%) for their traditional 401(k), Roth 401(k) or other defined contribution (DC) retirement savings plans.

SHRM says it is encouraged by the innovation it is seeing in the marketplace working with these themes, and it encourages benefits professionals, advisers and consultants to offer more effective educational opportunities concerning all-things-benefits. In particular, SHRM urges organizations to include education explaining annuities along with their other retirement-preparation specific planning advice, which is now offered by 44% of organizations.

The full analysis is available for download here

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