PSCA RELEASES ROTH 401(k) SURVEY 2007

Permanency Increases Interest in Roth 401(k)

CHICAGO (February 20, 2007) -The Profit Sharing/401k Council of America (PSCA) reports that more companies are interested in adding a Roth 401(k) feature to their retirement plan now that Roth 401(k) permanency has been achieved with the passage of the Pension Protection Act of 2006. According to PSCA’s newly released Roth 401(k) Survey 2007, 22 percent of 401(k) plans surveyed offer Roth designated accounts. Among companies not currently offering the Roth 401(k), 69 percent indicated that EGTRRA permanency has increased the likelihood that they will adopt Roth in the future.

“Anxiety over the Roth 401(k)’s 2011 sunset was a major concern among plan sponsors,” said PSCA president David Wray, referring to the 2005 PSCA study that found that among companies not planning to add a Roth feature to their plan, 41.6 percent cited concern about the potential Roth sunset in 2011 as a factor in their decision. He added, “The Roth 401(k) feature, like other provisions of the 2001 Tax Act that were scheduled to expire, will get greater attention now that the retirement provisions of that Act have been made permanent.” 

PSCA’s Roth 401(k) Survey 2007

In early 2007, PSCA collected data on 401(k) plan sponsors’ current practices and attitudes regarding Roth designated accounts. Data from 429 plan sponsors of varying size, industry, and geographical location documents the current prevalence of Roth accounts as well as the factors involved in the decision-making processes of companies that are not currently offering Roth accounts. 

Approximately 22 percent of plans surveyed currently offer Roth accounts. Size trends in Roth 401(k) implementation are evident, with smaller companies adopting the Roth feature at a higher rate than larger companies. Among plans offering Roth accounts, an average of approximately 8 percent of eligible employees made Roth contributions in 2006. Plan size trends are again evident, with the highest participation rates occurring in the smallest plans.

Table 1: Percentage of plans currently (2007) offering Roth 401(k)

Table 2: Average percentage of eligible employees making Roth 401(k) contributions 

Intentions about adding Roth 401(k) in the future

Among companies that do not offer Roth accounts, 61 percent are either planning to add or are considering adding Roth in the future.

Companies’ concerns about Roth vary significantly based on company size, with small companies most frequently citing lack of demand and large companies most frequently citing concerns about the additional education that would be necessary. Among companies not currently offering Roth, the majority indicated that EGTRRA permanency has increased the likelihood that they will adopt Roth in the future.

Table 3: Effect of EGTRRA permanency on Roth 401(k) decisions

The full text of PSCA’s Roth 401(k) Survey 2007 is available on PSCA's Web site.

The Profit Sharing/401(k) Council of America (PSCA), a national non-profit association of 1,200 companies and their 6 million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers and makes practical assistance with profit sharing and 401(k) plan design, administration, investment, compliance and communication available to its members. PSCA, established in 1947, is based on the principle that “defined contribution partnership in the workplace fits today’s reality.” PSCA's services are tailored to meet the needs of both large and small companies with members ranging in size from Fortune 100 firms to small, entrepreneurial businesses.