SURVEY SAYS: Will You Be Converted By Roth?

September 29, 2010 ( - President Obama has signed into law the Small Business Jobs and Credit Act of 2010— legislation that allows participants to convert their 401(k) or 403(b) balances to Roth 401(k) or 403(b) accounts (also 457 plans, effective January 1).   

Now, in order for that to “matter”, the plan has to allow for Roth accounts, and the participant has to be eligible for a withdrawal (a withdrawal that, of course, the plan has to permit).  This week I asked readers what – if anything – they would do regarding the Roth conversion option.   

Well, a clear plurality (46.2%) of this week’s respondents don’t have a Roth option in their plan currently – consequently, this is not an issue for them (certainly not in the short-term).  Another 9% said that while they currently offer a Roth, they do not plan to offer a conversion option, and more than a quarter (28.2%) say they hadn’t yet decided what to do,   

Just 9% said they were going to offer the option to convert, and the remaining 8% – well, they chose “other”, but most seemed more in the “it depends” category – mostly in the “it depends on what our recordkeeper can handle, how much it will cost, and what answers we get on the details of the conversion (see In-Plan Roth Conversions Present Challenges).    

Here’s a sampling from that latter group: 

If you draft it, they will come. If our national prototype plan provider drafts or provides a model tack on amendment that covers all of the unanswered questions, then yes we will have to offer the option to our plan sponsor clients that have the Roth 401k feature. The question now is how much to charge for this “value added” service. 

We currently have Roth option, however, want to offer conversion option, but not in service withdrawals. Still awaiting direction from recordkeeper and attorneys with regard to options. 

We’re leaning toward yes (CEO wants it) but we need more information on how this will work. 

Speaking of which, here are some other verbatims: 

Since we are a law firm, we have a lot of older partners interested in doing this. We already have Roth in place so we just need to wait until our plan administrator figures out the mechanics.

More work thanks to Congress.  The benefits field is littered with regulations, mandates and compliance issues that change daily.  You need to be in marathon shape to keep up with what's required in this industry.

We often target communications and/or group meetings to peer audiences, but don't exclude employees interested in the topic from participating. We announced a meeting for 50ish folks regarding Roth conversions and Roth's in general. We actually some "dudes" show up because they heard of the "Roth Conversions" and thought they really rocked. At least their hearts were into it.

We'll take a long, hard look at this, but the participant communications nightmare makes me shudder.

I think the Roth conversion with the 401(k)/403(b) is a "nice-to-have" but not a necessity.  Since you have to be eligible for a withdrawal, it'll only be available to a small population.  We'll communicate the law change in one of our upcoming newsletter but do not expect to see a big reaction to it.

We are a small plan, still well under 100 participants and I want to keep it that way.  If a participant is eligible for a withdrawal, I prefer they actually make a withdrawal.

We have no plans to add a Roth feature to our 401(k) plan.

I think they are hyped much more than they deserve.  Only in a very specific set of circumstances will it be likely that a Roth conversion would be beneficial. 

Despite my constant begging of the plan administrators to add a Roth option, they have not done so yet.

If it were simple to offer both a 401(k) and a Roth 401(k), I am sure we would offer both so participants could convert. 

it's good, but typical -- late announcement and makes recordkeepers and/or employers have to jump if we wish to do it, incurring programming and legal costs, at a minimum.  If we don't do it we have to defend why to our employees. 

This is a great idea....however, a day late and a dollar short to do anything meaningful before the 12/31/2010 year end. 

It's another one of those issues that sounds good but will be too administratively difficult for employers.  Not enough time to get this done in 2010, especially with dependence on vendors' systems and gray areas regarding tax withholding and reporting.  

But this week’s Editor’s Choice goes to the reader who noted, "This is the craziest thing Congress could think of to create a revenue offset for the bill.” 

Thanks to everyone who participated in our survey!