Retirement: More Employers Add Roth 401(k) Options Amid Rise in Overall Plan Participation

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A growing percentage of U.S. companies are offering Roth 401(k) plans to their employees in a rapidly changing retirement plan landscape that has been impacted by everything from federal legislation to the COVID-19 pandemic.

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The share of 401(k) plans that offer the Roth option increased to 86% in 2020, CNBC reported, citing a new survey from the Plan Sponsor Council of America. That’s up from 75% in 2019 and 49% a decade ago. Roth after-tax contributions are also included in 91.3% of large plans, the PSCA said in a Dec. 15 press release.

With Roth plans, employees pay taxes up front on their 401(k) savings, but all qualified retirement withdrawals are tax-free. That’s the opposite of how traditional 401(k) plans work, where you can deduct taxes on contributions but then must pay taxes on retirement withdrawals.

Overall participation in employer-sponsored retirement plans is also on the rise, with nearly 90% of eligible participants making contributions to plans in 2020 — a record for the PSCA survey, which is in its 64th year.

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Retire Comfortably

Several factors contributed to the rise in participation, including the pandemic and ensuing financial stress, an increase in employees working from home and relief provisions in the 2020 CARES Act, which made it easier for retirement plan participants affected by the pandemic to dip into their retirement savings.

The biggest boost might have come from the Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, which passed in 2019 and allowed long-term part-time employees to participate in plans. Nearly 75% of plans now allow salaried part-time employees to participate in retirement plans and nearly 70% let hourly part-time employees to do so, according to the PSCA.

“When people have access to retirement savings plans at work, they use them. Expanding access to plans as the SECURE Act did is clearly creating more retirement savers,” Hattie Greenan, the PSCA’s director of research and communication, said in a press release. “At the same time, the pandemic has created an environment that is shifting the way retirement plans are considered, designed, and provided that may ultimately reshape plans in the long run.”

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Retire Comfortably

Among the survey’s other key findings:

  • The use of automatic enrollment and automatic escalation made modest gains, with 62% of plans using an automatic enrollment feature.
  • The number of investment options offered to participants increased for the first time in more than 10 years.
  • About 40% of participants took advantage of advice when it was offered in 2020, up from a quarter of participants in previous years.
  • The use of webinars to provide plan education increased from a third of organizations in 2019 to more than half (53.7%) in 2020. The use of mobile apps has risen by 80% in the last five years, with nearly two-thirds of participants now using them.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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