Limited Interest in Roth Conversion Option

A Mercer news release said 45% of employers said their plans allow employees to make Roth contributions, and 79% of those currently allowing Roth contributions said that less than 10% of plan participants use the feature.  

Thirty-one percent of survey respondents say they plan to allow Roth conversions by the end of 2011, and 24% plan to add the feature at some time in the future. Among those employers who plan to wait, the majority say they will:

• See whether participants express interest (37%)
• Determine when recordkeepers will be ready to administer the feature (34%)
• See what other plan sponsors will do (23%).

“In-plan Roth conversions provide sponsors an opportunity to enhance their plans to benefit participants for little or no cost,” said Amy Reynolds, partner in Mercer’s Retirement, Risk & Finance business, in the news release. “While employers are understandably hesitant to take the plunge with outstanding administrative questions, we expect interest to increase over time.”

The survey generally shows only moderate employee interest in the feature so far. More than half (54%) of the plan sponsors indicated that employees have not asked about in-plan Roth conversions. Of the sponsors whose employees have expressed interest, 53% have heard from highly compensated employees, 37% from executives, and 33% from older employees or those with large accounts. Some 21% of surveyed employers have heard from rank-and-file employees about in-Roth conversions.

Among the 287 survey respondents, 52% have 5,000 or more employees and 32% have 1,000–4,999 employees; 44% have plan assets in excess of $500 million while 34% have plan assets of $100 million to $500 million.