More employers adding Roth 401(k) features, Aon Hewitt reports

More U.S. employers are adding Roth 401(k) plan features and employee participation in these Roth accounts is steadily increasing, according to an analysis from Aon Hewitt.

Aon Hewitt’s research found that half of all companies now offer a Roth account, nearly five times the percentage that did so in 2007. In a separate report, Aon Hewitt analyzed more than 3.5 million eligible participants in over 125 defined contribution plans and found that employee participation in Roth accounts is also steadily increasing. In 2013, 11% of workers saved to a Roth account when it was available in the plan, up from 8% in 2011.

Use of Roths predicted to rise

“Continued changes to legislation around Roth, coupled with increased awareness and understanding of these plan features, are driving more employers to add Roth savings feature[s] to their plan,” said Rob Austin, director of Retirement Research at Aon Hewitt. “Because of the potential tax benefits, employees increasingly see Roth accounts as attractive savings options and we anticipate that the use of Roth will continue to rise.”

Retirement readiness

Roth 401(k) plan features can also improve retirement readiness, Aon Hewitt found.
The report showed that while the average pay of Roth users was slightly higher than for non-Roth users, Roth users contributed significantly more to their plan than non-users. In 2013, workers saving to a Roth account contributed an average of 10.2%, compared to just 7.7% for non-Roth participants.
Attractive for younger employees, mid-level workers

Roth 401(k) plans tend to be an attractive savings vehicle for younger employees, the analysis found. Where Roth 401(k) accounts are available, 15% of workers in their 20s contributed to a Roth, compared to fewer than 8% of workers in their 50s.

In addition, 12% of employees earning between $60,000 and $79,000 participated in Roth 401(k) accounts, compared with just 6.3% of workers earning $20,000 and $39,000 and 10% of workers earning more than $100,000 annually.

“Young workers and mid-level earners are most likely to benefit from investing based on today’s tax rate,” emphasized Austin. “These workers are more likely to anticipate future tax bracket increases, so they are taking actions now that are likely to benefit them down the line.”

Source: Aon Hewitt press release, April 28, 2014.