Data & Research December 8, 2010

With Deadline Approaching, Many Undecided on Roth

The First Command Financial Behaviors Index reveals that 23% of middle-class Americans who own a traditional IRA have yet to decide if they will convert their account to a Roth IRA.
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A news release about the survey said so far, 5% of consumers have completed a Roth IRA conversion, and another 4% percent say they plan to convert.

“While the 2010 conversion opportunity is a potentially lucrative move, the uncertain economic climate has made it a difficult decision for many investors,” said Terri Kallsen, executive vice president of strategic development at First Command, in the news release “The cost of conversion taxes – as well as the possibility of moving into a higher tax bracket – has been a determining factor for many Americans who have already decided against a Roth IRA conversion. “

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Almost half of survey respondents say they are enrolled in a traditional IRA, making them candidates for a Roth conversion. Nine percent of consumers say they are currently enrolled in a Roth IRA, and one in five say they own both types of accounts.

Just one in three say they do not have an account that can be converted. Still, many investors have decided against a conversion. Thirty-four percent of consumers say they will not convert their traditional IRAs, and the most often cited reason is they expect to be in a lower tax bracket in retirement.

Products December 8, 2010

Limited Interest in Roth Conversion Option

Fewer than one-third of employers surveyed by Mercer say they will offer the in-plan Roth conversion feature before 2012, and 45% say they have no plans to offer it.
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A Mercer news release said 45% of employers said their plans allow employees to make Roth contributions, and 79% of those currently allowing Roth contributions said that less than 10% of plan participants use the feature.  

Thirty-one percent of survey respondents say they plan to allow Roth conversions by the end of 2011, and 24% plan to add the feature at some time in the future. Among those employers who plan to wait, the majority say they will:

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  • See whether participants express interest (37%)
  • Determine when recordkeepers will be ready to administer the feature (34%)
  • See what other plan sponsors will do (23%).

“In-plan Roth conversions provide sponsors an opportunity to enhance their plans to benefit participants for little or no cost,” said Amy Reynolds, partner in Mercer’s Retirement, Risk & Finance business, in the news release. “While employers are understandably hesitant to take the plunge with outstanding administrative questions, we expect interest to increase over time.”

The survey generally shows only moderate employee interest in the feature so far. More than half (54%) of the plan sponsors indicated that employees have not asked about in-plan Roth conversions. Of the sponsors whose employees have expressed interest, 53% have heard from highly compensated employees, 37% from executives, and 33% from older employees or those with large accounts. Some 21% of surveyed employers have heard from rank-and-file employees about in-Roth conversions.

Among the 287 survey respondents, 52% have 5,000 or more employees and 32% have 1,000–4,999 employees; 44% have plan assets in excess of $500 million while 34% have plan assets of $100 million to $500 million.

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