Pictured up top is one of several seminar invitations that the national marketing company, Seminar Direct, makes available to financial professionals who want to promote their services through direct mail and seminars.
In this case, it’s Roth IRAs, first made available by Congress in 1997 under the Taxpayer Relief Act. For the most part the financial industry has done a pretty good job of educating the individual investor. The Investment Company Institute (ICI), the national association of U.S. investment companies, reports in their research paper, The U.S. Retirement Market, First Quarter 2010, 17 million households now have Roth IRAs totaling $215 billion.
Roth 401ks? Not so good. Since the January 1, 2006 effective date, employer adoption has been slow. Only about 31% of 401k plans have added the Roth 401k as a savings option. Further, only 7% of 401k investors with access to a Roth 401(k) use one.
These statistics baffle Michael J. Francis, President of Milwaukee-based Francis Investment Counsel LLC, who was quoted in a recent article in 401 helpcenter.com:
The financial planning community cheered when this powerful wealth accumulation tool was finally made available," said Francis. "Yet it has been largely ignored by the vast majority of employers and 401k savers. I attribute this apathy to lack of information."
It’s a sentiment echoed by Carla Fried who writes in CBS Money Watch, Gen Y & Employers: A Failure to Communicate on Roth 401(k) Benefits?.
Maybe the tide is turning. A recent Hewitt study, The Role of Roth 401(k) in Retirement Savings, indicates that a growing number of large employers are adding a Roth 401(k) or Roth 403(b) option with more expected to implement them in subsequent years.
Our own client experience has been similar, many of whom took the opportunity to add Roth 401(k) as part of the EGTRRA restatement process.
But Mr. Francis and Ms. Fried are correct. Plan sponsors need to do a better job of communicating Roth 401(k) to plan participants. Especially if the Senate provision to permits Roth conversion with a 401(k) plan becomes law which the American Society of Pension Professionals & Actuaries (ASPPA) discusses in their recent news release, ASPPA Applauds Passage of Roth Conversion Provision.
For further information on Roth 401(k)s, here is a link to our 2006 FAQs, Giving Employees A Choice.