Many retirement savers aren't taking advantage of a Roth feature in 401(k) and other DC plans, even though more sponsors are offering one.
Participants often don't understand how the Roth option works, or what its tax implications are, consultants, researchers and record keepers said. They added that plan executives could do a better job of providing information about the Roth approach.
"The biggest culprit to a lack of takeup rate is that participants don't know how to take action," said Marina Edwards, a Chicago-based consultant for Willis Towers Watson PLC. "If they don't understand it, they don't use it."
Sponsors need to offer "a higher level of communication" to overcome participant reluctance, inertia and confusion, said Diana Awed, the Owings Mills, Md.-based head of retirement product and marketing for T. Rowe Price Retirement Services.
"So much of our retirement system is predicated on tax deferral," said Ms. Awed, referring to the taxing of distributions from a traditional DC plan rather than the taxing of contributions to a Roth plan. "Roth is more complicated. There are no simple rules of thumb." (Although available most often in 401(k) plans, the Roth feature also can be used by participants in 403(b) and 457(b) plans).
Martin Schmidt's clients aren't clamoring to offer Roth options. "I'm not seeing a groundswell of interest," said Mr. Schmidt, principal at HS2 Benefits, an investment and benefits consulting firm in Chicago. "It's more a case of providers bring it up and sponsors say it's a nice feature to have. Utilization is minimal."
Participation rates among Vanguard Group Inc. clients have inched up in recent years.
Among DC plans that offer a Roth option, 13% of participants used it last year vs. 10% in 2012, according to Vanguard's annual survey of client behavior, published in June. The survey covered 1,900 plans — mostly 401(k) — and 4.4 million participants.
Those rates pale in comparison to the percentage of plans offering this feature — 65% last year vs. 49% in 2012 — according to the company's "How America Saves 2017" report.