SURVEY SAYS: Got a Roth 401(k)?

April 3, 2008 ( - Earlier this week, we reported on some new data from Schwab that suggests that Roth 401(k)s are picking up in popularity.

A report, in fact, that said 35% of Schwab-administered retirement plans offered the Roth 401(k) as of December 2007, up from 26% a year earlier (see  Schwab: Roth 401(k) Takeup Rates Rising ).  

This week I asked readers if their plan currently offered a Roth 401(k) option – and if it did a year ago – and the results were remarkably consistent with Schwab’s totals.   Roughly a third (34.8%) of this week’s respondents currently offer a Roth, for example – while just under a quarter (22.2%) said they had the program in place last year.   Now, that still meant that more than half (54.3%) did not have a Roth in place presently (11% said “not yet” – so that suggests growth looking forward).

It may be worth noting, however, that those numbers were essentially unchanged from a survey we did about this time last year – so perhaps not as much change as had been anticipated.  See SURVEY SAYS: Planning to Add A Roth?)

Some Resistance

There is, however, continued reluctance to make retirement plans any more complicated.   One reader noted, “From my perspective, employers/trustees/TPAs, have a hard enough time coming up with what is taxable vs. non-taxable on a distribution. Throw in Roth IRAs and the amount of errors will just increase, causing plan qualification errors to grow.”

Still, most of this week’s comments came from readers who apparently wanted to add the option, but…as one said said, “We talked about adding a Roth 401(k) option, but that fell by the wayside like many other good H.R. initiatives that management didn’t support — like 360 degree reviews of supervisors, long-term disability insurance, and an employee volunteerism program.”

A more cynical perspective was the reader who noted, “I have become convinced that our plan is really the [insert Executive’s name here] since the ONLY reason we added a brokerage window option is that [insert Executive’s name here] wanted it. He/she thinks he/she is a really savvy investor. So if a Roth is what he/she wants it will be added. Is it the best thing for all plan participants? That doesn’t matter. Sorry, I will now climb off my soapbox.”

Positive Reports

“We implemented the Roth feature on January 1, 2006, thanks to support from our recordkeeper, Schwab,” noted another, who went on to say, “And yes, we are one of those professional services firms Schwab mentioned in their report. We’ve been very pleased with the Roth participation rate although, as with most plan sponsors, I’d be happy to see participation rates in general move upward.”

Another observed, “People are talking about it more and warming up to it, and our participation rate in Roth 401k is going up, albeit slowly. Generally, we have a lot of cheap labor, and our people are discovering that since they already get a fat tax refund–paying little or no taxes–they’re in a position to take advantage of a “Net-no-tax-ever” situation. Even some of our higher income earners are jumping in because they can afford to and want the flexibility in retirement. …It’s a smart option to have in our plan!”

And still another – perhaps proving the old adage about the cobbler’s children lacking shoes – said simply, “I’m at Schwab – where Schwab’s own plan didn’t adopt Roth 401(k) until 1/1/2008.”

But this week’s Editor’s Choice goes to the reader who wondered, “What I’d really like to know is whether or not the “Roth” moniker is going to stick around as long as “Keogh” did.”

Thanks to everyone who participated in our survey!

Uncertain markets, rising fuel prices - and it IS an election year, after all.  

The media continues to ask the question - if only rhetorically, it seems - are we in a recession?   While the technical definition of a recession is two consecutive quarters of negative GDP (and to date we've had none in a row), this week I asked readers what you thought.

A slight plurality - 34.4% - said they thought we were already in a recession, and one-in-ten said we were heading into a recession.   On the other hand, more than a quarter ( 28.2% ) said that they thought heading into a period where people will talk so much about us being in a recession that we'll head into a recession - and nearly 13% said we were "heading into a period where people seem to want to talk about being in a recession".  

Roughly 9% said we were "hitting a few bumps, but mostly fine," and the rest - admitted they had "no earthly idea."

Despite the diversity of opinion, this survey's Editor's Choice goes to the reader who said we were "heading into a period where thegovernment knows we are in a recession."

Thanks to everyone who participated in our special bonus survey!

In view of the aforementioned turmoils (see  What's Your Recession-Sense? ), this week I also asked readers what, if any, actions they had taken since the beginning of the year with their personal retirement savings account.

The most common change cited (I neglected to provide a "no change" option, but based on the number that skipped the question, it is probably reasonable to assume that about 40% had done nothing) was to make a change to how new contributions are invested, an option noted by 54%. 

Nearly 45% said they had increased their deferrals, while one-in-four said they had made a change to how current balances were invested (respondents could choose more than one option, of course).   About one in eight had invested in some kind of asset allocation solution, and one-in-ten said they had decreased deferrals.   Five percent had either taken a loan or a withdrawal.

This sub-survey's Editor's Choice goes to the reader who responded, "This is a trick question, right. Where's the hidden camera, eh. I'm following the plan I put in place based on retirement goals, objectives, risk tolerance, etc..."damn the torpedoes, full speed ahead".

Thanks to everyone who participated in this survey!

January 26, 2006 ( - Last March, we did a NewsDash Survey Says on what our readers thought - and planned to do about - the Roth 401 (k) (see  SURVEY SAYS: Is There a Roth 401(k) in Your Plan's Future?).

At the time, the most common response was "intrigued, but waiting for final regs to decide," while, even at that point in time, 22% were already "committed" to the concept.   Well, we're nearly a year older - and thanks to the final regs that were published on December 30 (see  At Long Last Final Roth Regs! ), we're also a bit wiser.   This week we asked readers about their plan's CURRENT plan for the Roth 401(k).

Thinking back to last year's survey, I recalled a strong split in the responses between readers who were clearly committed to, and excited about, the prospects of the Roth - and those who saw it as one more complicated feature in an already complicated plan design.   This week's responses were no less divided.   Consider that roughly 11% of this week's respondents already had their program up and running, while nearly 28% said it would be operational this year (and most of these were leaning toward a date in Q1, or 04/01).   "We are a) up and going with Roth.   As a TPA, we keep our plan modern and progressive," noted one.  

"We rolled out the Roth 401(k) to our population of 300 eligible employees," said another, whose "…biggest problem (beyond the communications) seems to be our payroll provider's inability to monitor the combined 402(g) limit for employees contributing to both the Roth 401(k) and the pre-tax 401(k)."

In fact, among the 15% who said the current thinking on adding a Roth was "up in the air" generally laid that status at the feet of their provider(s).  "Our recordkeeper originally told us everything would be ready by 1/1/06, but then the last week of December told us Roth(k) would not be available until 4/1.   Guess it took more programming than they thought," said one (although, in their defense, the final regs didn't come out until the last day of the last week of the year).

"Our recordkeeper won't be able to administer Roth 401(k) accounts until June '06 at the earliest (their software provider, who shall remain nameless) didn't start programming for Roths until after the final regs. were released," said another.  "It's up in the air, …because our broker is the one holding us up," explained one.  "He doesn't recommend it as he feels it confuses people with too many options, "too much to think about."   While there may be some truth to that, several of us on the 401k committee see it as a great boon to many in our company who make low enough wages to avoid paying taxes already (if not a full refund)."  Another noted simply, "Probably (in 2006), but it's looking more complicated than we originally anticipated."

On the other hand, roughly 24% said it that "the Roth" was "going nowhere" at their workplace, and another 22% said it was NEVER going anywhere.   Among that group was the reader who said it was "Partly due to our lack of confidence in our record keeper, partly due to our lack of confidence in our decentralized payroll to handle this new deduction, and partly due to the fact that few really understand how to decide if this is in their best interest."  

"My boss initially gave me instructions to pursue and potentially implement a Roth, right up until I convinced him that I was right when I told him that Roth contributions are included in calculating the total amount employees are eligible to defer each year ($15,000 this year)," explained one.  "He said "oh, well I'd rather defer up to the limit on a pre-tax basis rather than post-tax" so we nixed the plan. Frankly, I'm not too supportive of this offering when you already have a very active, well-designed 401(k) plan."

"We have looked at it, but it just seems to make the plan more complicated and more difficult to communicate for very little benefit for a very few participants," noted another, who then went on to acknowledge, "However, opinions change over time so I doubt that this it totally "dead in the water"."

"We're very much into financial wellness education at our company, and we do a lot of communication with our employees.   But just the thought of trying to explain the Roth and the regular 401(k) to people who have a hard time just grasping the basic 401(k) concept gives me a headache!," observed another.  

Nor does there appear to be much participant demand - at least at present - for the feature among this week's respondents.  "Out of over 500 participants we have only had 1 request, so it is a definitely a back burner issue for me," noted one.  "I've only had 1 person inquire about it and before I consider it seriously, I'd like to be able to pass my non-discrimination test! , offered another.

"We're too busy changing 401k providers to even mess with this!," noted another, while you could almost put music to this reader's response, "Very few will use it (con), even fewer will understand it (con), adds expense (con) and work (con) to your plan,   payroll deduction (pro), "what were they thinking" - before going on to note that they "may write a country song about it."

But this week's Editor's Choice goes to the reader who said, "We've only had two people ask about it so it's not worth spending the R&D dollars on at this point.   Maybe in a few years...oh wait, that's about when it sunsets isn't it?"

Thanks to everyone who participated in our survey!