Roth Contributions on the Rise

The amount of employers offering Roth contributions in their 401(k) plans rose by 50%, according to a study by T. Rowe Price.

More than half (61%) of retirement plans now offer Roth contributions in their 401(k) plans, according to a report from T. Rowe Price Retirement Plan Services.

This is a 50% increase since the end of 2015 and the biggest one-year increase in Roth contribution adoption since the company began tracking the figure in 2007.

The same report also indicated that adoption of automatic plan features has been on the rise since the Pension Protection Act of 2006. The number of plans with a 6% default deferral rate or more has doubled since 2011, with 33% of plans offering this higher rate in 2016. The industry standard for the past 10 years has been 3%.

The percentage of plans adopting automatic deferral increase grew from 63.3% in 2011 to 71.5% in 2016. Similarly, automatic enrollment increased from 39.8% in 2011 to 54.5% in 2016.

Participation rates continue to be strongly tied to the adoption of auto-enrollment, with participation 42 percentage points higher in plans with auto-enrollment than in those without it.

Pre-tax deferral rates continued to increase in 2016 and now stand at 8%, the highest rate since before the financial crisis. T. Rowe Price accounts the improvement to plan sponsors raising the default deferral rate for their plans and improved market conditions.

Furthermore, plan adoption of target-date portfolios continued to rise. In 2016, 93% of plans at T. Rowe Price offered target-date portfolios. Additionally, 55% of participants invested their entire account balance only in target-date funds, an increase of nine percentage points since 2013. 

The firm also found the percentage of participants with loans at the end of 2016 is down marginally to 23.8%, which is the lowest since the height of the financial crisis in early 2009.

The ratio of direct rollovers to cash-outs continued to strengthen with rollovers increasing to 81% in 2016, compared with 71% in 2009. Cash-outs decreased to 19% in 2016, compared with 29% in 2009. Meanwhile, hardship withdrawals declined, with only 1.4% of participants in plans at T. Rowe Price taking such a withdrawal, compared with the 2% industry average.

These findings come from T. Rowe Price’s 2016 update of Reference Point, an annual benchmarking report of employer-sponsored retirement plans based on T. Rowe Price’s full-service recordkeeping client data. The full report can be accessed at