|Employers dragging their feet on
The New Year may have brought a touch of disappointment
to many workers who had been hoping the Roth feature would be added
to their company's 401(k) plan.
401(k), available Jan. 1, 2006, allows participants
to set aside a portion of their after-tax pay in a retirement account
that grows tax-free. (A Roth 403(b) is available to
403(b) plan participants.)
But a survey by Profit Sharing/401(k)
Council of America, or PSCA, an organization that assists companies
with the design and administration of profit sharing and 401(k)
plans, indicates that only 17 percent of companies are offering
the new plan to their employees. Of those companies that did plan
on adding the Roth feature, only 42 percent expected to make it
available Jan. 1. The rest say they'll adopt it during the year.
"Just because someone passes a law in Washington, D.C., to
provide an additional voluntary opportunity in a benefit program
doesn't mean a company has to immediately implement it," says
David Wray, PSCA president.
Why so much reluctance by employers to add the Roth?
Answers range from "employees will be confused by another plan"
to "the Internal Revenue Service hasn't issued final rulings
regarding some areas of the Roth 401(k)." Research
by mutual-fund giant Vanguard lists at least two areas -- taxation
of nonqualified distributions and required minimum distributions
after age 70½ -- that are awaiting final decisions by the
"I hear concerns about the additional administrative
and compliance resources necessary to run the program right and
the difficulty that many feel there will be in educating the rank
and file participants," Wray says. "It's a challenging
issue to educate employees about investment concepts, and now it's
important to teach them about tax planning."
Another question that's up in the air is whether the Roth in any
form will be around much longer. It exists because of a tax act
that expires Dec. 31, 2010, and it's up to Congress to decide whether
to extend the act.
Here's the breakdown of the portion of PSCA's survey
that asked 425 401(k) plan sponsors about their intentions regarding
the Roth 401(k). PSCA says the respondent companies "spanned
a wide range of sizes, industries and geographic locations."
That's discouraging to some financial planners who
view the Roth 401(k) as another arrow in the employee's financial
Geordie Crossan, a certified financial planner based
in Westlake Village, Calif., says the Roth 401(k) provides benefits
for employees across the board.