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CCH® PENSION AND BENEFITS — 7/10/07

Roth 401(k) accounts are gaining in popularity, Mercer and EBRI say

If current trends continue, Roth 401(k) accounts may soon become the standard feature in defined contribution plans, according to a recent survey conducted by the Employee Benefit Research Institute (EBRI) and Mercer Human Resource Consulting. The survey involved 163 respondents from companies that sponsor both defined benefit and defined contribution plans, and revealed that 37.6% of those companies have either adopted or are planning to add Roth 401(k) accounts to their defined contribution plans. Sixty percent of companies with 25,000 or more employees have adopted Roth 401(k) accounts, compared to the adoption rate of 28% by companies with fewer than 5,000 employees. Mercer and EBRI attribute the increase in adoption rates to the Pension Protection Act of 2006 (PPA; P.L. 109280), which eliminated the possibility that the Roth 401(k) account option would expire in 2010.

Auto enrollment on the increase

Mercer and EBRI also credit the PPA with the fact that automatic enrollment is gaining momentum among employers, since, according to Dallas Salisbury, president and CEO of EBRI, it “added to the momentum by removing barriers and creating incentives for plan sponsors to offer automated features.” Salisbury added that, “automatic enrollment may soon become standard practice among DC plans.” Sixty-six percent of companies surveyed either have automatic enrollment or are considering adopting it in the future. Not surprisingly, adoption rates are lowest among not-for-profit corporations, and highest in the financial and banking industry. The study also showed that 48% of the surveyed companies are considering auto escalation of participant deferral rates, or have already incorporated it into their plans.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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