More Employers Consider Roth Following EGTRRA Permanence

February 21, 2007 (PLANSPONSOR.com) - A recent survey from the Profit Sharing/401(k) Council of America (PSCA) shows a majority of sponsors either plan to implement a Roth 401(k) feature in their retirement plans or are considering doing so now that the 2011 sunset provision is eliminated.

Sixty-one percent of sponsors surveyed intend to implement or are considering implementation of the Roth 401(k) in the future. Only 17% of companies surveyed by the PSCA in 2005, prior to the passage of the Pension Protection Act (PPA), planned to adopt a Roth 401(k) (See Nearly 20% of Employers to Add a Roth K Feature ). The PPA made the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) permanent which eliminated the 2011 expiration of the Roth 401(k) feature. Sixty-nine percent of 2007 respondents said EGTRRA permanence has increased the likelihood of adopting a Roth feature.

The 2005 PSCA study found that among sponsors not planning to add a Roth feature to their plan, 41.6% cited concern about the Roth sunset as a factor in their decision. In PSCA’s current study, almost 60% of companies that have not added a Roth account cite concerns about the additional participant education that will be necessary if implementing the feature.

Other reasons cited by respondents who have not added a Roth account included a lack of participant demand (57%) and the additional administrative burden of adding the feature (55%).

The 2007 survey results showed 22% of plans currently offer a Roth 401(k) account and, among plans with a Roth account, an average of 8% of eligible employees made Roth contributions in 2006. PSCA found small plans (those with 1 – 49 participants) most often implemented a 401(k) feature and also had the highest percentage of participants making Roth contributions.

More than one-third of the smallest plans (36%) offered a Roth 401(k) account, compared to almost 14% of the largest plans (those with greater than 5,000 participants). Among plans that had a Roth 401(k) feature, the smallest plans saw an average 13% participant take-up rate, while the largest plans had an average 1.3% participant take-up rate.

The 2007 Roth 401(k) Survey is here . A free registration is required.

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