|Employers dragging their feet on
"There are excellent benefits for younger employees,
and it offers exceptional benefits for high income earners who don't
have the ability to save in a Roth IRA because of the income limitations.
So, for young, old, high income and moderate income -- all can share
the benefits of a Roth.
"I'm sure that way back when, there were employers
who were asking 'Why should we adopt the 401(k)?' We as advisers
and the financial media need to get the word out so participants
can go to employers and request adding the Roth feature to the 401(k)."
Scott Revare is CEO and co-founder of Smart
401(k), an online advisory service headquartered in Overland
Park, Kan., that advises people on how to allocate their 401(k)
"A rough estimate is that less than 10 percent
of the 1,400 plans we see have expressed that they're moving forward
with the Roth option in their retirement plans. I've seen a high
level of interest from participants and a high level of hesitation
from employers. There are questions about the changes to payroll
and record keeping, handling pretax and after-tax.
"If they're just worried that employees would be confused,
that's not the right reason. A portion of people are confused, but
an equal number of people aren't confused and are very interested.
It's a benefit to be able to contribute and not worry about taxes
down the road. There are a lot of people who think taxes will only
go up from here and that people should lock it in now."
Rick Meigs, president of 401kHelpCenter.com, says
many employers are taking a wait-and-see position.
"Employers are never sure whether these things are going to
be popular and whether they should go to the expense. They've gone
through this before and then they get low participation. One example
is the ability for people age 50 and above to make additional contributions.
Ninety percent of plan sponsors modified their plans because of
all the hype and the perceived interest by employees. But only 5
percent to 10 percent of the participants have used it."
While employers figure out what they want to do, employees can
prepare themselves by considering the pros and cons of adding a
Roth component to their retirement portfolio.
A Roth adds tax diversification. More than likely most of the balance
in your retirement account is pretax money that will be taxed as
you withdraw it. Even if you expect your retirement income to be
25 percent or 30 percent less than current income, it can still
be a leap of faith to decide your future tax rate will be lower.
A Roth provides a hedge against possibly higher taxes.
If the Roth interests you, talk to your employer or
retirement plan administrator about adding it to the 401(k). If
it looks as though your employer won't add it, do the next best
thing -- set up a Roth IRA on your own and get the same benefits.
You won't be able to contribute as much money, but it's a good start.