Roth 401(k) Knowledgebase
Plan Sponsor Information
To determine if and when a Roth 401(k) is a desirable option for a new or existing plan, employer/plan sponsors and their advisors should focus on the technical and operational requirements as discussed in the previous chapter as well as the following important issues.
In addition to required disclosure requirements (e.g., SPD, SMM, Safe Harbor Notice), employers must be prepared to distribute comprehensive employee communications describing the new Roth feature. The single most important issue relative to communicating the Roth 401(k) option is to keep it simple. How the information is framed is the key to avoiding information overload.
Employers should consider including some or all of the following information in the communications materials:
A chart comparing the features of the Roth versus the pre-tax option may be helpful as well, depending on the intended audience but again, the key here is to keep it simple.
Similar to when the pre-tax 401(k) first became available in the early 1980’s and the Roth IRA first became available 1998, plan participants eventually will come to understand the nuances between Roth and pre-tax 401(k) choices as the lay press and institutional providers write more about these new options.
Business Owner and Key Personnel Needs Advisors and plan sponsors should consider if the addition of a Roth 401(k) feature is beneficial to the business owner and/or key personnel typically responsible for making plan design decisions, and those individuals charged with the responsibility to implement the requisite changes.
What Will It Cost An employer/plan sponsor should expect to incur costs associated with some or all of the following relative to adding a Roth 401(k) feature to a new or existing plan.
Employer Feasibility Study The representatives of the plan sponsor charged with the responsibility to make decisions of this nature should request a formal feasibility study from their service providers prior to implementation of this feature. The study should outline all issues and costs associated with the actions necessary to add the Roth 401(k) feature to a new or existing plan, and the subsequent ongoing administrative services including:
▪ Advisor and/or internal senior or administrative personnel time to research and outline all relevant issues relating to implementation, and ongoing recordkeeping and administrative services requirements
▪ Preparation of plan amendments
▪ Preparation of revised SPD or SMM
▪ Preparation of modified forms
▪ Preparation of Employee Communication
▪ Presentation of Employee Communications
Recordkeeping and Administration Reprogramming for:
▪ payroll processing
▪ compliance testing
▪ participant accounts
Sample Implementation Schedule