Press Release

Roth 401(k) contributions: employers and employees are missing out on a golden financial well-being opportunity

Willis Towers Watson offers employers four steps to boost participation

May 4, 2016
| United States

ARLINGTON, VA, May 4, 2016 — Many U.S. employers are missing out on a golden opportunity to help employees with their financial well-being by not offering or fully explaining and promoting the benefits and value of Roth 401(k) contributions, according to retirement experts at Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.

Roth 401(k) contributions can be one of the most tax-effective ways for employees to save for retirement. With Roth 401(k) contributions, workers make contributions using aftertax dollars and are able to take tax-free withdrawals at retirement. More importantly, Roth contributions can offer tax diversification for many retirees as they begin to take pensions, employer-match contributions from regular 401(k) plans and other taxable income. And unlike with regular 401(k)s and Social Security, Roth 401(k) contributions are not subject to minimum distribution requirements after age 70 ½ if they are rolled over to a Roth IRA.

“A Roth 401(k) account can be a tremendously valuable vehicle for employees to save for retirement,” said Marina Edwards, a senior retirement consultant at Willis Towers Watson.

“Unfortunately, many employers have yet to appreciate and, in some cases, communicate effectively, the full potential of the Roth option,” said Kevin Wagner, a senior retirement consultant at Willis Towers Watson.

When the Roth 401(k) option was first introduced, it was often administratively cumbersome. Today, retirement plan providers and payroll companies have largely eliminated these barriers. According to a Willis Towers Watson survey, the percentage of plan sponsors offering a Roth option has increased from 46% in 2012 to 54% in 2014. However, the Roth option is woefully underutilized by employees. Less than 10% of plan participants that have the option currently make Roth 401(k) contributions.

“When employees bypass Roth 401(k) contributions, they unnecessarily narrow their tools for tax-effective retirement savings. For some, using distributions before age 65 may enable qualification for health care subsidies under the Affordable Care Act. Roth contributions can also help some retirees avoid the tax torpedo, which can increase a retiree’s marginal tax rate based on the tax phase-in on certain Social Security benefits,” said Wagner.

To help boost employees’ understanding of the savings opportunity the Roth option offers, Willis Towers Watson is suggesting that organizations:

  • Communicate program features and benefits clearly and regularly. Because one size does not fit all and the value of Roth contributions may change over time even for the same employee, plan sponsors should segment employees and identify their needs based on life stages, life events and other characteristics. Communications should be tailored to these segments, and messages should be short and action-oriented.
  • Use an interactive approach to reach employees. In addition to traditional retirement education tools such as newsletters, account statements and online webcasts, plan sponsors should consider using mobile apps and digital technology to engage employees.
  • Provide effective retirement planning modelers. Modeling tools can be effective at helping employees better understand their retirement plan options. When evaluating retirement planning modelers, plan sponsors should make sure that the modeler they select includes total estimated retirement income, pay growth, inflation, tax effects and health care costs.
  • Implement a process to monitor employee financial well-being on an ongoing basis through plan-level analysis focused on when employees will be financially ready to retire.

“The Roth 401(k) presents a significant opportunity to help employees build adequate retirement savings and maximize the tax strategies that will have the greatest impact on improving their retirement readiness and financial well-being. While future tax law changes may bring changes to the Roth option, savvy employers that take measures to help employees better understand and use this option will have a valuable piece of the retirement puzzle in place for their employees and future retirees,” said Wagner.

More information about Roth 401(k) plans can be found in Capturing the opportunity of Roth 401(k) contributions: what employees are missing and how employers can help.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at