General Motors Corp. and the New York City Deferred Compensation Plan were the only two funds of the 15 contacted by Pensions & Investments that will offer the Roth 401(k) in January.
GM spokesman Robert Herta said GM will offer the Roth 401(k) in 2006, but would give no additional information about the automaker's plans.
"There are many people who would be better off (saving money) post-tax than pre-tax," said Georgette Gestely, director of pre-tax benefits for the City of New York, who oversees the $5.7 billion deferred compensation plan.
IP's Mr. Hunkeler doesn't agree. The Roth 401(k) is "a little bit better for some people, but it's not a great deal for anyone," he said.
"It seems to be good for the young, highly paid workers," said Randy Boldt, director, global rewards, for Motorola.
"Some highly compensated employees would like to lock in (taxes) at today's rates because they don't know what taxes will be 20 years from now," said David Wray, president of the Profit Sharing/401(k) Council of America, Chicago.
Stephen Utkus, principal at Vanguard Center for Retirement Research, part of The Vanguard Group, Malvern, Pa., said the Roth 401(k) can have benefits for low- and middle-income participants who are in a very low tax bracket and therefore don't get much in benefits from pre-tax deferred savings.
However, J. Mark Iwry, a senior fellow in economic studies at The Brookings Institution, Washington, pointed out that low-income people "are the ones who are least likely to participate in a 401(k) plan and are least likely to have a 401(k) available to them."
In addition, the Roth 401(k) plan "adds an additional level of complexity, especially by confronting individuals with yet another decision in addition to whether and how much to contribute and how to invest," to the offering of 401(k) plans, said Mr. Iwry.
"I think it could be a nightmare," said Shlomo Benartzi, professor of accounting at The Anderson School of Business at the University of California at Los Angeles. He said getting employees to understand the Roth 401(k) and how it works, and whether the regular 401(k) or the Roth 401(k) is better for them, will be a daunting task.
"It's adding another level of choices — not only will the participant have to choose between investment options, he must choose between plans," said Mr. Benartzi. And the fact that the basic differences between the two plans is related to taxes will make it even more difficult, he asserted. "Very few people understand taxes."
"The No. 1 concern of plan sponsors is that by offering the Roth 401(k), it may provide another excuse for people to do nothing and not join a plan" because they are confused, said Lori Lucas, director of participant research at Hewitt Associates LLC, Lincolnshire, Ill.
Mr. Utkus expects only the more financially savvy participants to move to the Roth 401(k). He said less than one-third of Vanguard's defined contribution plan clients are showing interest in offering the Roth 401(k). Vanguard is making a big investment in getting its record-keeping systems ready to handle the Roth 401(k) and in developing appropriate education materials for plan participants, he said.
Deborah Novotny, director of ERISA compliance at T. Rowe Price Retirement Plan Services, Baltimore, said her firm also is preparing its record-keeping systems and educational materials to be ready to handle the Roth 401(k) plan, acknowledging that "the vast majority of our clients are still in the decision process."
Hewitt's Ms. Lucas said, "One of the most important sources of support we're developing is a model that would help a person understand the different values of the Roth 401(k) and the regular 401(k)" as the firm prepares its record-keeping and communications systems to handle the new plan.