In the report, NAGDCA notes that participant communications and education about Roth contributions will be different than for pre-tax contributions. Previously, plan communications have focused on the value of a tax deduction received today and paying it back at lower rates in the future. The Roth feature’s selling points are more about coordinated retirement planning and avoidance of future taxes.
The report says 401(k) and 403(b) plans offering Roth contributions have seen gradually increasing participation especially among new employees and younger employees with low to middle incomes. These employees are best approached using multiple communications channels and are more likely to use Web-based modeling tools, NAGDCA advises.
Interested employers will need to amend all plan documents and make changes to administrative and payroll processes prior to accepting Roth contributions. Employee communications and forms will require extensive re-design since Roth contributions and In-Plan Rollovers have new income tax and planning implications for participants.
If the employer wishes to enable In-Plan Roth Rollovers, the plan document must also include provisions allowing Roth contributions effective no later than when they wish to allow In-Plan Rollovers. The 402(f) notice will also need to include language that explains In-Plan Rollovers. Model language is available in IRS Notice 2010-84 that could be used for this purpose.
NAGDCA suggests that employers should start discussions early with administrative service providers to ensure that they can handle all the intricacies of these new accounts since vendors have had little opportunity to plan for the required changes to recordkeeping processes.The NAGDCA Issue Brochure is at http://www.nagdca.org/documents/NAGDCA_IssueBrief_Roth_457.pdf.