Worried about losing some of the $3 trillion in assets they oversee, defined contribution plan administrators have forged a coalition with plan sponsors and retirees to lobby Congress to allow Roth conversions for 401(k) plan participants.
The heavy marketing of this year's tax law change, which removes income caps for converting conventional individual retirement accounts to Roth IRAs, has prompted fears among plan administrators that many 401(k) holders with high balances will move their money to Roth IRAs. In their congressional lobbying, administrators argue that a flight to Roth IRAs could make 401(k)s more expensive to run, resulting in higher fees for remaining participants.
“It will encourage leakage from these arrangements,” said Judy Miller, chief of actuarial issues and director of retirement policy at the American Society of Pension Professionals and Actuaries, which represents administrators and attorneys who work with 401(k) plans.
Groups involved in the lobbying effort are the ASPPA, the Profit Sharing/401k Council of America, The ERISA Industry Committee, the Society for Human Resource Management, the U.S. Chamber of Commerce, Hewitt Associates LLC and the Women's Institute for a Secure Retirement.
Small-business owners are already leaving the 401(k) world, said Adam Pozek, vice president of consulting services at Sentinel Benefits and Financial Group, which administers 401(k) plans with a total of about $2.5 billion.
One small-business client of the company terminated both its defined benefit pension plan and its 401(k) plan in December so that the owner could convert his own assets to a Roth IRA, Mr. Pozek said. The plans served 17 employees.
“Now they don't have any retirement benefits,” he said, noting that plan administrator fees are based on average participant account balances. “When you take the larger balances out of a plan, the average account balance decreases, and the fees increase.” Proponents argue that permitting conversions would help combat the federal budget deficit because tax revenue on money leaving conventional 401(k) plans would be realized sooner rather than later. They also contend that 401(k) plans offer professional management at a lower cost to participants than IRAs.