U.S. Venture commissioned a study of its plan in 2014 to assess why it had lower-than-hoped-for participation even though it had offered traditional auto enrollment since 2009, said Amy Vissers, director of total rewards. The study showed many non-participants were younger and lower-paid employees at the company, which distributes energy products, lubricants, tires and auto parts.
The information prompted a "healthy" discussion among members of the plan's investment committee, Ms. Vissers said, "but the decision seemed pretty obvious to everyone" that the Roth approach could be attractive to younger and lower-paid employees.
"We did a full in-plan conversion," she said. "We explained that Roth was a great way to get into the 401(k) plan." She emphasized that U.S. Venture only offers education about how Roth works and how participants are taxed.
The plan allows employees to opt out, choosing a traditional 401(k) approach or declining participation. Each March, it auto enrolls everyone contributing less than 6% of pay to their retirement accounts.
At Brady, the company initiated a traditional auto enrollment in 2005 and has offered a voluntary Roth feature since 2007. Company officials began discussing Roth auto enrollment after a Francis Investment Counsel analysis found the average age of new employees at the manufacturer was 28 and suggested company officials consider the strategy, Ms. Nelligan said. A target-date fund series is the qualified default investment alternative.
The plan's investment committee studied the matter for about six months, concluding the Roth approach made sense for younger, newer employees, she said. "There wasn't any pushback from employees," said Ms. Nelligan, a sentiment echoed by Ms. Vissers at U.S. Venture.
Even though more DC plans are offering Roth options, investment growth has been slower for many reasons, including the complexity of Roth rules. Participants are more comfortable taking immediate tax deferral rather than calculating their tax strategy decades into the future, consultants said.
Sponsors might offer the Roth option, but some provide little education or communication, the consultants said. Record keepers might not incorporate the Roth approach into their platforms for auto enrollment; and most plans that offer auto enrollment do so with the traditional 401(k).
"Operationally, Roth can be an issue," Francis Investment Counsel's Mr. Dunteman said."The more complicated it gets, the more likely the sponsor might stand pat."
However, the combination of younger workers and lower salaries can make a compelling case for some companies, he said. Nine of his firm's 47 clients now auto enroll participants into a Roth strategy but all them to opt out. Three others are setting up a Roth auto-enrollment feature. Most clients offer Roth auto enrollment only to new employees. The overall Roth participation in these plans can be as high as 60%, Mr. Dunteman said.