auto enrollment to pretax or Roth

This post is intended to gather the groups thoughts about auto enrollment to pretax or Roth. Let's assume the document allows for either choice. 

Among our clients who auto enroll, 100% auto enroll with pretax. At the time of making the decision to auto enroll to pretax, there is no analysis done to determine if it should be pretax or Roth. The decision is always made solely based on the idea that pretax is most common and therefore must be the right decision. I feel like no one wants to be the first one sued over a Roth default. Even though pretax is the most common default and little thought goes into the decision, a decision is still being made by the sponsor to determine that pretax is better and more prudent than a Roth default. Either choice impacts the participants tax situation. 

Does anyone see auto enrollment to Roth among your clients? I think there is a valid argument to say Roth auto enrollment may be better for certain employers. Are there any publications that suggest auto enrolling to Roth is not a prudent decision?

Thanks for your thoughts.

Leaving aside the merits of which is a better plan-design choice:

To support the discussion WCC seeks, it might help to distinguish between choices an employer makes as its plan’s sponsor (non-fiduciary), and decisions the employer makes as the plan’s administrator (fiduciary).

If a plan’s governing plan document specifies the automatic-contribution provision, including whether that contribution is Roth or non-Roth, is that choice a settlor provision?

If that choice between a Roth or non-Roth automatic contribution is specified in the plan’s governing document, is the plan administrator’s responsibility limited to obeying the plan document?

If the plan’s administrator must do something more than just obey the plan document, what exactly must the administrator consider?

Under what circumstances must a plan’s administrator disobey the plan document and put the automatic contributions in the other tax treatment?

What facts would a participant need to allege to set up a plausible claim that the plan administrator’s decision not to disobey the plan document harmed the participant?

Would that claim be negated or weakened by a finding that the participant had, initially and continually, a power to undo the plan-specified default choice?

Do answers to these questions suggest an employer may make its plan-design choice between Roth or non-Roth automatic contributions by focusing on which treatment better helps the implied-assent participants, without too much fear about liability grounded on a fiduciary’s responsibility (if any) to disobey the plan document?

WCC- you make an interesting point about auto enrollment into pre-tax v. Roth. My thought is once the funds are in a Roth, it's irrevocable, unlike pre-tax where you can do a IRR and make the funds into a roth. I think it's safer to default to the pre-tax since you have that flexibility. But i like the question.

Many have reasoned that default choices should aim on the side of what can be changed.

But that’s one of many principles some use in setting default choices.

Here’s a reason that might point in a Roth-ing direction: A participant who takes a hardship or early distribution might receive lower income (and so, a lower 10% “penalty” tax on a too-early distribution, and perhaps lower marginal income tax rates) to the extent that the hardship or early distribution is allocable to a Roth subaccount.

Whichever way an employer sorts out these and other employee-benefit choices, I assume an employer may specify provisions as its plan’s creator or settlor, and so not as the plan’s fiduciary.