Roth 401(k) Option Availability Increases With Company Size

The Roth 401(k) that allows participants to make contributions on an after-tax basis while allowing for tax-free withdrawals is increasing in popularity, with large employers taking the lead, according to a new survey by Transamerica.

The study found that 59% of large companies and 60% of medium ones offer this option. Overall, 52% of plan sponsors offer a Roth 401(k). A separate Transamerica survey of workers found that among workers who are both aware of the Roth 401(k) option and offered it by their employers, approximately six in 10 contribute to it.

Large companies also lead in offering traditional 401(k)s and matching contributions, the study finds. Matching contributions are more prevalent in large companies. Seventy-nine percent of plan sponsors offer a matching contribution as part of their 401(k) or similar plan, including 77% of small companies, 80% of medium-sized companies, and 84% of large companies. Transamerica says, “The employer’s matching contribution is one of the most important features of a 401(k) or similar plan because it incentivizes employees to join the plan and enables them to further build their retirement savings.”

In addition, 71% of employers say their employees view a 401(k) or similar retirement plan as an important benefit. However, it is a luxury enjoyed by only 60% of small companies as opposed to 90% among large companies.

In addition, automatic plan features are more prevalent in larger companies’ plans; 21% of plan sponsors have adopted automatic enrollment, including 31% of large companies, 20% of medium-sized companies and 19% of small companies. Plan sponsors with automatic enrollment report a median default contribution rate of 5% of an employee’s annual pay. Automatic escalation, a feature which automatically increases participants’ contribution rates annually with no action required by participants, has been adopted by 47% of plan sponsors. It is more prevalent at large (52%) and medium (50%) than small companies (44%).

Among plan sponsors not offering automatic enrollment, only 34% plan to do so in the future. Thirty-nine percent do not plan to offer it, and 27% are “not sure.” Among those not planning to offer it, the three most frequently cited reasons are participation rates are already high (39%), concerns about cost (32%) and administrative complexity (20%). According to TCRS’ 17^th Annual Retirement Survey of Workers, 89% of workers find automatic enrollment to be appealing.

The survey also found many plan sponsors are not making plans to manage a workforce that is aging and working longer.

Transamerica’s report was drawn from responses to a 21-minute online survey conducted between November 20  and December 20, 2016, among a nationally representative sample of 1,802 employers. The full study “All About Retirement: An Employer Survey 2017″ can be found at Transamericacenter.org.