Defined contribution executives at ThyssenKrupp Materials NA Inc., believe the principles of automatic features can help plan participants become more tax-efficient in their retirement savings.
Starting Jan. 1, new employees will be automatically enrolled in the company's traditional 401(k) plan or its Roth option, depending on their annual salaries. Those earning more than $50,000 will be auto enrolled in the former; those earning less than $50,000 will be auto enrolled in the latter. Employees may opt out.
Plan executives said they wanted to meet the needs of a diverse workforce — warehouse workers, higher-paid executives, people near retirement and younger workers — as well as to overcome the inaction by workers confused by the Roth option, said Kathryn Towe Littleton, director of human resources for ThyssenKrupp Materials, a Southfield, Mich.-based subsidiary of Germany's ThyssenKrupp Services AG.
“What employees don't know, they don't do,” said Ms. Littleton.
The Roth option — in which participants' contributions are taxed, but distributions are not — should appeal to people in lower tax brackets, Ms. Littleton said, adding that using an automatic approach should help them overcome inertia.
That's where the plan feature called dynamic automatic enrollment comes in. For now, it will be available only to new employees because that's the initial coverage offered by its creator, John Hancock Retirement Plan Services, the company's record keeper.
John Hancock will later expand this program to cover existing participants. “ThyssenKrupp will review that version when it becomes available,” Ms. Littleton said. Current employees may select the Roth option.
The company introduced its 401(k) plan in 1994 and added the Roth option in 2012. The Roth participation rate is 8% — low but not a surprise. “We felt that's what something new might be,” said Ms. Littleton describing the participation rate.