SURVEY SAYS: What's Your Plan's Plan For the Roth 401(k)?

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).

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!