Plan design is a very important component to allowing you plan to attract and retain top talent. This talent will be crucial in small to mid sized companies to remain competitive.

Paying Now or Paying LaterWhat we said: As with self-directed brokerage accounts, the Roth conversion window (and its affiliated tax acceleration) seems most likely to appeal to the highly compensated minority. The impetus for the conversion itself is not only the timing window, but also the (still) looming sunset of the Bush Administration’s tax cuts. Of course, the real issue may be a shift in assumptions about taxes; what if they won’t be dependably lower in retirement?

Where we are: Perhaps the most surprising trend to emerge from this year’s PLANSPONSOR Defined Contribution Survey was a huge increase in the offering of Roth 401(k)s, an option that “plan sponsors have long been reluctant to push since their pay-it-now concept on taxes seems at odds with the traditional tax-deferral mantra, and their benefits are often seen as skewed toward more highly compensated workers.” This year’s survey found that 38.2% of all plans now offer the option, compared with just 20.2% a year ago, and that increase was broad-based across market segments. Of course, just try finding someone today (who is not running for political office) who is expecting taxes to be lower in the future.

What’s ahead: As with self-directed brokerage accounts, the Roth conversion window (and its affiliated tax acceleration) seems most likely to appeal to the highly compensated minority. Many more plans are now offering the choice, but it remains to be seen if participants will respond in kind. I would guess not that many in the short term—but that, of course, could change.

Plan design is critical to many small businesses to realize a true employee benefit. One which will attract and retain talented employees.

Please comment or call to discuss how this could affect you and your company.