News & Information

 

FEATURED PRODUCT

CCH's Law, Explanation and Analysis of Health Care Reform Legislation
Get full explanation and analysis of every aspect of health care reform legislation. These legislative changes will imminently impact thousands of employers, private insurance providers, and the Medicare and Medicaid programs. Pre-order today and save $20!

Learn More »

CCH® PENSION — 5/15/07

Roth 401(k) Adoptions Growing In Vanguard Plans, Especially With Short-Tenured Employees

from Spencer’s Benefits Reports: Approximately 14% of Vanguard’s retirement savings plans adopted Roth 401(k) provisions by the end of 2006. By the end of 2007, Vanguard expects that figure to double. Small plans were more likely to adopt a Roth 401(k) feature than were large plans: 16% of plans with fewer than 500 participants versus 8% of plans with more than 5,000 participants. According to an April 2007 report from the Vanguard Center for Retirement Research, “Anecdotally, sponsors of larger plans report greater delays in implementing the payroll system improvements needed for processing Roth contributions.”

Business, professional, and nonprofit services companies were most likely to adopt Roth 401(k) provisions (21%); followed by finance, insurance, and real estate companies (18%); education and health companies (17%); and transportation, utilities, and communications firms (13%). Roth 401(k) features were least likely to be adopted by the wholesale and retail trade industries (5%) and the agriculture, mining, and construction industries (6%), Vanguard found.

In the Vanguard plans that adopted the Roth 401(k) option, 5% of plan participants elected to utilize the Roth 401(k). Based on tenure, 10% of participants with less than one year of service adopted a Roth 401(k); followed by 6% of those with one to three years of service; 3% of those with four to 25 years of service; and 2% of those with more than 25 years of service. Higher-paid individuals were more likely to use the Roth 401(k) feature (6% of those earning more than $125,000) than lower paid individuals (3% of those earning less than $50,000). Middle-income participants (those earning $50,000-$124,999) used a Roth 401(k) at a rate of 4%.

Of those participants who had elected to use the Roth 401(k) feature at one time, 53% placed all of their elective deferrals in the Roth 401(k), while 8% had discontinued their Roth 401(k) contributions. The remaining 39% of participants used some combination of Roth 401(k) and pretax contributions, including 6% who deferred between 10% and 19% of their contributions to a Roth 401(k), 12% who deferred between 50% and 59% to a Roth 401(k), and 1% who deferred between 80% and 89% to a Roth 401(k).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.