Sandy McCarthy, president of retirement services at CitiStreet LLC, Quincy, Mass., said plan executives have had some time to weigh the pros and cons of adding a Roth 401(k) and the professional organizations — law firms, doctors, dentists, financial services companies — have, not surprisingly, led the pack.
"There have been a couple of plans that have implemented Roth," and several more of CitiStreet's 120 clients are inquiring about adding a Roth feature to their plans, said Ms. McCarthy.
"With any new product, it takes some time to pick up," she said, adding that education is especially important when participants must choose between two plan options. "We incorporated Roth into our service talks with sponsors. We explain the background and what participants need to consider," she said.
Kevin Crain, director of integrated benefits at Merrill Lynch Retirement Group, Pennington, N.J., said 30 of its 1,300 plan sponsors are very interested in adding a Roth contribution feature, but only six have actually implemented it.
"The discussions are moving along. And since this is a voluntary feature, there wasn't a tremendous push; sponsors may have had other priorities in the first quarter. But I think that as clients hear about other plans doing it, they will do it. Word of mouth will spur interest," said Mr. Crain.
Todd Buchanan, senior vice president of market management at AIG VALIC, Houston, said that as of April 18, about 150 of its 20,000 plan sponsor clients offered either a Roth 401(k) or Roth 403(b) feature for hospitals and school districts.
Joe Ready, senior vice president and head of Wachovia Retirement Services, Charlotte, N.C., said, "There has been lots of interest and lots of discussion. It's a feature that helps individuals increase their savings rate, and many sponsors recognize that."
Steve Zients, senior vice president at T. Rowe Price Retirement Plan Services, Baltimore, said Roth started out as a non-event. "It started out very, very slow. I'd say about two handfuls. But we expect another 25 to 30 by the end of the year." T. Rowe Price has about 700 defined contribution clients.
In its Hot Topics in Retirement in 2006 survey, Hewitt Associates LLC, Lincolnshire, Ill., found that 13% of respondents were very likely to add a Roth 401(k) account this year, and 21% said that are somewhat likely to do so.
Employers typically offer the Roth 401(k) to appeal to participants who expect their tax rates in retirement to be higher than their current tax rates.
Lori Lucas, director of participant research at Hewitt, said the early adopters of Roth 401(k) are employers with investment-savvy and vocal employee populations.
As a result, more large plans than small plans are adopting Roth 401(k).
International Paper Co., Stamford, Conn., will add Roth contributions to its $4.1 billion 401(k) plan on Aug. 1, said Robert Hunkeler, vice president of investments. "IP wants to give employees the choice. Many have asked about it over the past few months," he said. The plan's bundled provider is JP Morgan Retirement Services, Kansas City, Mo.
The New York City Deferred Compensation Plan added a Roth 401(k) to its $6.8 billion plan in April. Denise Peart, deputy assistant counsel, confirmed the option was added to accommodate employee demand. Great-West Retirement Services is the plan's record keeper.
While many in the industry expected larger plans to be the early adopters, many small 401(k) plans jumped on the Roth bandwagon early.
Employees at American Appraisal Associates, Milwaukee, requested a Roth feature said Diane Bradley, director of compensation and benefits of the $40 million 401(k) plan. As of March 1, 22 of 322 employees signed up for it, she said. Seattle-based Milliman is record keeper.
Don Rogers, CFO of Demco Inc., Madison, Wis., said the firm's $30 million 401(k) plan implemented a Roth feature Jan. 1. "We've had a terrific response. About 80 of our 500 employees are using it," he said. U.S. Bank is the plan's record keeper.