Business Insurance

Login  |  Register Subscribe



cbVid =

Robert Steyer | Pensions & Investments

DC participants save more in Roth accounts: Aon Hewitt report

April 28, 2014 - 3:25pm


Among defined contribution plans that offer Roth accounts, the average annual deferral rate for participants using the Roth approach was 10.2% vs. an average annual rate of 7.7% for other participants, according to a report from Aon Hewitt issued Monday.

“Roth users seem more engaged,” said Rob Austin, Aon Hewitt's director of retirement research, in an interview. “They are power savers.”

The Aon Hewitt report, based on records of Aon Hewitt clients, also found that participants using the Roth approach are more likely to be younger employees and tend to have been with their employers for relatively few years.

Among age groups, 17.2% of employees ages 20-29 used the Roth approach, in which they contributed money to their 401(k) plan on an after-tax basis. Roth accounts were most popular among the 20-29 group; the usage percentage declined steadily in 10-year increments among other age groups.

The younger people “are those who are making elections right now,” Mr. Austin said. “They may have come from another employer that had a Roth plan.” Older employees, he added, may be less willing to change their retirement savings strategy. Also, older workers have a better idea of their post-retirement tax requirements, so they may view the traditional 401(k) plan as a better choice than a Roth 401(k) plan, he said.

For terms of employment, the highest Roth use was 14.8% among participants with two to three years of service, followed by 14.5% for those with one to two years of service, and 14% for those with three to four years of service. The longer participants remained with their employers, the smaller the percentage that used Roth accounts.

The Aon Hewitt report is based on client records for year-end 2013 covering 125 plans and about 3.5 million participants, the overwhelming majority of which were in 401(k) plans.

Robert Steyer writes for Pensions & Investments, a sister publication of Business Insurance.

 



Get our twice-weekly Benefits newsletter
  •