|
Boost CU Employee Benefits by Introducing
Roth 401(k) Accounts
One of the latest employee benefit options available to credit unions also may be among the most significant ones institutions can add to their benefit selection. In addition to offering employees more flexibility in managing their retirement savings, ensuring a higher payout when those funds ultimately are taken, recent research indicates that companies with an employee base the size of most credit unions are more willing to offer this option than other companies.
The Roth 401(k) option offered in a traditional 401(k) plan, much like the more familiar Roth IRA, allows employees to deposit after-tax funds that earn tax-free interest while being held within a qualified plan. This ensures a higher payout level when the employee retires, since no further taxes are taken either from the funds deposited or the interest earned. The Roth 401(k) was introduced in 2001 with a delayed effective date of 2006 was originally set to sunset in 2010. When Congress enacted its pension reform initiatives in 2006, Roth 401(k) accounts were granted permanent status. CUNA Mutual added Roth 401(k) accounts to credit union employee benefit options earlier that year.
The uncertainty until last year of the new option’s status has kept some credit unions from adding Roth 401(k) accounts to their 401(k) plans. Changes in the law just discussed, backed by recent research, show that pubic acceptance of the option has increased significantly.
According to research done by the Profit Sharing/401(k) Council of America (PSCA), small businesses with an employee base roughly the same as that of most U.S. credit unions appear to be the primary market for the Roth 401(k). Data collected from 429 retirement plan sponsors from among various industries and geographic locations show that the largest percentage of Roth 401(k)s were offered by companies with less than 200 employees. More than 36% of companies with less than 50 employees offered the option and more than 32% of firms with between 50 and 199 employees offered the option. As companies grew in the number of employees, the demand by employees and the willingness of employers to add the Roth 401(k) feature diminished, said survey respondents.
CUNA Mutual does not charge existing client credit unions extra to add a Roth 401(k) feature to their 401(k) plan. From the credit union standpoint, an added cost may be incurred in accounting for the additional payroll deduction. Be sure to check with your payroll provider before addition the option to your plan. From an employee standpoint, however, there may be benefits to diversifying their retirement savings strategy depending on the employee’s current situation as well as what they expect their tax situation to be in retirement.
- Contributions to a Roth 401(k) account and the interest earned will not be taxed if the funds are withdrawn after the participant turns 59½ ; on account of death or disability as defined by Social Security disability guidelines; and five years after the first deposit is made to the account.
- Depositors who fail to meet the above criteria yet withdraw their fund still won’t be taxed on their initial deposits, since those deposits were made with after-tax funds. However, interest earned will be taxed at the normal rate and may be subject to a ten percent early withdrawal penalty, since the qualifying conditions aren’t being met.
For many employee depositors, the added flexibility of a Roth 401(k) makes the plans very attractive, a characteristic that may outweigh the credit union’s additional administrative requirement. And offering a Roth 401(k) account as part of a standard 401(k) plan adds greater flexibility to retirement account selection.
For more information about CUNA Mutual’s Roth 401(k) program, contact your CUNA Mutual Sales Executive by dialing 1-800-356-2644, or go http://www.cunamutual.com
CUNA Mutual Group 2007. Used with permission.
PEN-0507-C359  Top
|
