Dive Brief:
- Many U.S. employers could offer a golden opportunity to help employees with their financial well-being. But they are falling short by not offering or fully explaining the benefits and value of Roth 401(k) contributions, which can be one of the most tax-effective ways for employees to save for retirement, according to Willis Towers Watson, the global advisory company.
- With Roth 401(k) contributions, workers make contributions using aftertax dollars and are able to take tax-free withdrawals at retirement. And more importantly, Roth contributions can offer tax diversification for many retirees as they begin to take pensions, employer-match contributions from regular 401(k) plans and other taxable income.
- According to a Willis Towers Watson survey, however, the percentage of plan sponsors offering a Roth option only has increased from 46% in 2012 to 54% in 2014. Roth plans are also woefully underutilized by employees, as less than 10% of plan participants that have the option currently make Roth 401(k) contributions.
Dive Insight:
The Roth 401(k) option is no longer administratively cumbersome, because retirement plan providers and payroll companies have largely eliminated early barriers.
“Unfortunately, many employers have yet to appreciate and, in some cases, communicate effectively, the full potential of the Roth option,” said Kevin Wagner, a senior retirement consultant at Willis Towers Watson.
To help boost employees’ understanding of the savings opportunity the Roth option offers, Willis Towers Watson suggests that employers follow some basic steps, including: communicate program features and benefits clearly and regularly; use an interactive approach to reach employees; provide effective retirement planning modelers, and, finally, implement a process to monitor employee financial well-being on an ongoing basis. The firm also offers a report with more details on how employers can take advantage of the Roth option.
