Although Roth 401(k)s have only been available for the past three months, nearly 8% of workers are electing this option, according to a study of three large defined contribution plans representing 61,000 participants, Hewitt Associates found, according to a report by Dow Jones. And that jumps to a participation rate of nearly 25% when workers are newly enrolling in a 401(k) plan.
Some sponsors have been reluctant to offer Roth 401(k) options, fearing that contribution levels might decrease since contributions are not tax free, and therefore cost more out of a participant's pocket. But so far, contribution levels in both regular and Roth 401(k)s average 3%, Hewitt found.
Another reason companies have been averse to Roth 401(k)s is that they are set to expire at the end of 2010, as per the Economic Growth and Tax Relief Reconciliation Act. Some sponsors would prefer to offer the Roth 401(k) option only if it were to be made permanent.
Interestingly, about half of those contributing to a Roth 401(k) also invested money in a regular 401(k), and most of the companies that are offering this choice are financial services or professional services companies, whose employees tend to be more sophisticated about investment issues.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.