Thirty-one percent of defined contribution plans surveyed by Mercer will offer in-plan Roth 401(k) plan conversion features by 2012, allowed under a new federal law, but 45% say they have no plans to offer the feature.
The Roth conversion, which allows employees the option of paying taxes on their retirement plan balances during their working years, was part of the Small Business and Infrastructure Jobs Tax Act of 2010 that passed Sept. 27.
The survey of nearly 300 DC plan sponsors in October and November showed 45% already allow employees to make Roth contributions, but of those that offer it, 79% said less than 10% of employees use the feature.
Of the plan sponsors that are waiting to offer the feature, 37% are waiting to see whether employees express an interest in the program, 34% are trying to determine when record keepers will be ready to administer the change, and 23% are waiting to see what other sponsors decide.
“In-plan Roth conversions provide sponsors an opportunity to enhance their plans to benefit participants for little or no cost,” the survey report states. “While sponsors are understandably hesitant to take the plunge without IRS input on the outstanding administrative questions, we expect interest to increase over time.”
Amy Reynolds, Mercer partner, said in a telephone interview that she was not surprised at the low participation by plan sponsors, considering the late date the law was approved. She noted that sponsors would need to have their plans in place by the end of the year to offer the feature by the following year.
She said plans were similarly slow to offer Roth contributions themselves when they were first allowed in 2006.
“It took a few years,” she said. “It was not a mad dash.”