Roth 401(k)s are Finally Getting Noticed, But Employers Are Playing Wait and See

Yahoo Finance provides a rundown of how they will work. Essentially, they will operate just as Roth IRAs currently do, but will have the much higher contribution limits found inside 401(k) plans. 401(k) contribution limits are usually at least 15% of earnings, but are sometimes as high as 50%, depending on the employer’s plan design. The Roth IRA contribution limit for 2005 is $4,000 ($4,500 for those 50 and older).

This is an idea whose time has come, especially for younger employees. The trouble is that very few employers plan on making the move in 2006 (graphic was obtained from Investment News–paid subscription required):

This is not a good thing. A few years of delayed implementation could cost younger employees thousands of dollars in long-term wealth. The Yahoo item notes:

This is where it gets tricky: While any employer can add a Roth 401(k) option to its plan starting Jan. 1, 2006, it isn’t required. Among the major concerns for employers are the costs associated with managing the plan, and educating their workforce about this new investment option. According to The Profit Sharing Council of America’s President David Wray, companies will be much more likely to start offering a Roth 401(k) if their employees indicate that they intend to participate. So if you want a Roth 401(k) option to be added to your plan, make sure to let your employer know.

Education should be an ongoing employer concern anyway. To try to get a handle on the costs involved, I called Fidelity Investments, and confirmed what I thought, which is that the conversion costs essentially would involve adding boilerplate language to the 401(k) plan documents permitting the Roth treatment (no tax “deduction” for contributions, distributions tax-free) vs. the traditional treatment (contributions are pre-tax, distributions are taxed), and changing the forms for enrollment and making changes.

This doesn’t seem like a big burden to me. I would chalk up employers’ current posture to inertia more than anything else. So BizzyBlog’s Money Tip of the Day is to let your employer know you want the Roth option in your 401(k)–starting next year.

Business items worth noting today (some links require registration and/or subscription):

Data Breach Specific Still Being Kept Under Wraps

It stunning (to me) that more about the compromise of 40 million credit card account numbers isn’t known to the general public yet. The Eweek column notes that “only” 200,000 accounts out of the 40 million appear to be at high risk.

There does seem to be a more general concern emerging about third-party processors like Card Systems, where the breach occurred:

While companies that handle sensitive data may have shored up their own network defenses, they often fail to follow the data trail and consider the security of third-party companies they partner with, Gibbons (a security official at another company) said.

“My sense is that companies haven’t thought this through from a protection point of view—they haven’t done real clear thinking about how to protect sensitive data and what do when incidents occur,” he said.

MasterCard said it intends to take a “close look” at third-party processors and is recommending that the U.S. government expand the reach of data privacy laws such as Gramm-Leach-Bliley to cover third-party processors that deal directly with consumers, Locke said.

This does seem to validate some of the general concerns expressed by many privacy advocates over the past few years about outsourcing certain sensitive functions.

The Big Two respond very differently to difficult times

BizzyBlog wrote a pretty thorough piece about Ford’s and GM’s troubles in late April and predicted that Ford had a legacy of union-management cooperation from its late-1970s problems that would help it through it current troubles, while GM, which is going through its first crisis of continued existence, will have a much more difficult time.

It turns out that the two companies are indeed responding differently:

• GM is offering their employee discount to everyone until July 5, a top-down, one size fits all approach.
• In another top-down move, GM is giving the union until the end of the month to agree to cut UAW members’ health benefits.
• Ford, on the other hand, is putting power in its employees’ hands by making each and every one of them a salesperson (link requires free registration):
  

  Ford workers learned of their company’s incentive offer in an e-mail message Wednesday, company spokesman Jon Harmon said. It runs through Sept. 30.

  “If every employee and retiree helps sell just one more vehicle, it would account for over 300,000 sales and an additional two points of market share,” Ford Vice President Steve Lyons said in the e-mail.

  Employees or retirees will get $50 for the first customer they draw. They get $75 for the second, $100 for the third, $150 each for the fourth through seventh and $175 for the eighth, he said.

  “The response so far has been positive from employees,” Harmon said.

People Downloading (i.e., stealing) Movies Will Not Be Pleased with This

Bit Torrent loses its virginity, so to speak, as a torrent of spyware often comes along for the ride. Some would call it poetic justice. I would just call it a reason not to download movies.