SURVEY SAYS: Is There a Roth 401(k) in Your Plan's Future?

March 17, 2005 ( - While the notion of the new Roth 401(k) is still new - and perhaps ill-formed at present - this week we asked readers about their reaction to the proposal…and how likely it was to find a home in their future plan designs.

Given the current formative nature of the proposal, it is perhaps not surprising that nearly a quarter of this week’s respondents characterized their stance as “intrigued, but waiting for the final regulations to decide.”   However, that was only slightly more than the 22% who said they were definitely planning to incorporate the option (once the regulations are finalized, of course) – but not much ahead of the roughly one in five who said they were still “clueless” about the proposal – at least for the moment.  

About 15% said they were convinced the benefits won’t outweigh the costs (and for many, the complexity) of implementing the new accounts, and about 12% said they were still confused as to what the benefits of a Roth 401(k) account might actually be.   The rest placed themselves in an “other” category, generally because they were still straddling several of the options provided, including the reader who said, “I guess I am somewhere between ‘c’ or ‘f’ (and I don’t mean ‘e’).   I find it difficult to believe that many of our employees will contribute to a ROTH option; I find it even more difficult to believe that the complexity added to payroll and recordkeeping would not add significantly to our costs.   On the other hand, if a handful of employees were interested in some type of monthly deduction to feed a ROTH IRA of their choice, I might consider that a viable alternative.”   Another reader in the “other” category noted, ” We will offer it when it becomes final because employers will want it and F, because even when we do offer it the average participant won’t understand the benefits.”   Another “other” respondent also expressed a glum take on the option, noting, “I foresee an administrative nightmare on top of the trials of helping people understand how it would all work.”

One reader who was “very intrigued, but patiently waiting for the final regs,” noted, “Roth 401(k) would be popular and beneficial if communicated properly.   But, can participants handle any more education and subsequent decisions?”

While those already committed to the concept were almost uniformly strongly enthusiastic, there were readers such as the one who said, “Regs did not answer a ton of questions.   Very disappointed in the lack of detail.”   More typical in this group was the reader who noted: “I am going to try to convince the firm to add this feature to the 401(k) plan. The costs of administrating the two accounts will certainly be a factor for a group our size — 63 employees. Nevertheless, I think it’s a good option since employees will be able to handle their investments through one vehicle and will get quarterly reports about the earnings or losses.”   Another observed, “I am an attorney specializing in custom drafted plans.   I suspect that most of the 315 plans I represent will want to have Roth provisions.” 

Yet another “other” respondent noted, “We haven’t given it any significant thought yet.   We need to think about the value of the option to our employees, learn how our record keeper will handle Roth contributions (if past practice is a predictor, it will be quite some time before they announce how they will administer Roth contributions), consider the regulations in some detail, see what other employers will be doing, etc., etc.   It’s just too early.”

In the “confused” category was the reader who said, “We’ve had some interest, but no groundswell.   We have to look at whether it makes sense, but if I had to vote today, I’d vote against it.   I’ll let someone else take the development risks.”

In the “from your lips to Congress’ ears” category was this reader comment: “I am concerned that our friends in Washington do not understand the complexity of what they are doing to the average plan participant.   We don’t need more variations on savings opportunities; we need simplification of what we have already.   The vast majority of our plan participants do not understand the current options available to them, and it is becoming impossible to explain it in a manner which they comprehend.   To add additional complexity like Roth IRA-type 401(k)contributions will only confuse them more and drive more to not participate…for what benefit?”   And this from a reader who was “intrigued, but waiting for the final regs.”

That perspective was echoed by a number of readers in different response categories, including this “confused” reader who said, “I vote confused.   That says it all.   Where is that ‘easy’ button we see on TV?   The IRS needs to simplify things for employers, not make them more difficult.”   A reader who was having trouble seeing how the benefits could outweigh the costs and complexity observed that the Roth 401(k) was “…just another complication that we don’t need.”   Another “confused” reader said, “I have to say that I am thankful I’m in HR because then I HAVE to learn this stuff, and my family is glad to have me as a resource. Bottom line: Stop the madness with offering employees so many choices about things they don’t understand and don’t want to understand.”

However, this week’s Editor’s Choice goes to the reader who said, “Company savings offerings are beginning to look like the line item page of my phone bill.” 

Thanks to everyone who participated in our survey!