Automatic enrollment ED's as designated Roth Ks?

[Guest Penny17]

Are elective deferrals made as a result of automatic enrollment to be treated strictly as pre-tax contributions or, in 2006, will a participant be allowed to have an option to treat them as "designated Roth contributions."

On one hand, the Code says that a qualified Roth contribution program means a program whereby an employee may elect to make designated Roth contributions, implying that the employee makes an actual election to have such contributions made; on the other hand, a designated Roth contribution means "any elective deferral" which could be pretax but which the employee designates as not being excludable.

I recogniize that a participant receiving an automatic enrollment might be the type not to get too involved in the deferral amount so s/he would not likely go to any effort to designate the type of ED (Roth or not), but there may be those who are donkeys in the path who let the employer make the election for them but who want the benefits of a Roth contribution.

I'm hoping for an obvious answer that I've just been missing. Thanks for any assistance!

[E as in ERISA]

I'm not aware of anything that would currently prevent that. And if the IRS ever came after them, they could probably use an insanity plea. (Unless legislation passes this year that would clear up some of the issues relating to state preemption, fiduciary liability for default investments, etc. then I don't know why else an employer would let someone check the Roth versus pretax boxes on an election form and ignore the deferral percentage and investment elections. I'd require it to be all or nothing).

[WDIK]

If the participant will be given the option to designate deferrals under a plan with automatic enrollment as Roth contributions there are two possible scenarios.

1) The participant makes an election prior to the commencement of deferrals, in which case the automatic enrollment seems redundant.

2) The participant makes an election after the commencement of deferrals, in which case the tax withholding and reporting will probably be incorrect.

I'm sure there are other factors that I haven't fully thought about but it seems to me that a "Roth designation" and automatic enrollment are somewhat incompatible.

[E as in ERISA]

Well, now that I think about this, what's going to happen when Roth 401(k)s become effective? If someone currently have a 10% deferral election....If the person wants Roth, will they have to fill out a new form that says what percentage they want in Roth and what percent pretax? Or will the form allow them to simply say how much they want in Roth -- and will there be an assumption that is in lieu of a portion of their current pretax...or in addition to current pretax? If they want all to go to Roth, can they fill out a form that simply says all deferrals will now be Roth? If so, can that be applied to those in automatic enrollment? It would not have to be either redundant or retroactive in that case. A form could be filled out in December 2005 and effective in January 2006. I wouldn't think that would be a good idea from an employer's standpoint to let an automatic enrollee get away with specifying only the type and not percentage or investments -- unless legislation passes to give protection. But what are the forms going to look like in general?

[WDIK]

fill out a form that simply says all deferrals will now be Roth... applied to those in automatic enrollment...would not have to be...redundant

I probably didn't express myself adequately in the prior post. The point I was trying to articulate is that automatic enrollment requires no forms or elections, so a process that requires a form or an election seems to run contrary to the general premise of automatic enrollment.

[mbozek]

An employer who adopts a Roth 401k option must notify participants of its availability. Eligible participants will have the opportunity to elect Roth status for their contributions. Default option will be pre tax. It would be imprudent to change all deferals to after tax w/out knowing if an employee will benefit from a roth as a long term investment.