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Survey Says Large Plans Nervous About Roth Mandate

A survey of larger plan sponsors finds most concerned about the potential participant response to a mandated shift to Roth tax treatment in 401(k) plans.

In its member survey the Committee on Investment of Employee Benefit Assets (CIEBA) found that 78% of the 61 member respondents believed that a switch to an all-Roth system would negatively affect participation rates in their 401(k) plans (though only 15.69% thought it would very negative, and 21.57% thought it would have no effect), and 61% said they would not be comfortable converting participants who had made pre-tax deferrals into Roth deferrals without affirmative consents. CIEBA says it represents more than 100 of the country’s largest pension funds, and describes itself as the largest organization of corporate pension investment officers.

Participant communications was the area that CIEBA members were most concerned about in adjusting to an all-Roth system, with about 4 in 10 saying that it would be “very difficult” or “extremely difficult” — and this from a group of respondents where nearly three-quarters (73.77%) currently offer a Roth option to their participants. That familiarity explains the relatively low level of concern about the implications for payroll processing (51% not at all difficult), internal recordkeeping (59% not at all difficult) and internal accounting (67% not at all difficult).

Asked how they thought their participants might view a change to all-Roth, about a third (35.29%) said “very negatively,” while roughly half (47.06%) said “somewhat negatively.” However, only 51 of the 61 survey respondents replied to this question.

Those concerns notwithstanding, these plan sponsors – as those responding to an earlier survey by the Plan Sponsor Council of America — were not inclined to drop their current plans following a switch to Roth. More than half (56%) said they would be “very unlikely” to do so, while another 6% said that result would be somewhat unlikely, and another third (32%) characterized their response as neither more nor less likely. Only one employer said they would be very likely to do so, and just two said they would be “somewhat likely” to do so.