Employers prepare to add Roth features to 401(k) plans
An increasing number of U.S. employers are planning to add Roth options to their 401(k), 403(b) or other defined contribution plans in 2013, a January 2013 survey by consultancy Aon Hewitt reveals. This comes on the heels of legislation that makes it easier for defined contribution investors to convert balances within their savings plan into Roth accounts.
Unlike traditional 401(k) plans, where employees make pretax contributions and, after retirement, pay income taxes on all distributions, Roth 401(k) contributions are made with after-tax dollars. Funds in the plan grow tax-free, and on retirement no taxes are owed on any distributions.
Previously, converting funds from a pretax to a Roth 401(k) account was limited to money that was already “distributable” without penalty from the pretax plan — typically when an employee reached age 59½ or terminated employment, unless the plan otherwise allowed in-service distributions.
The American Tax Payer Relief Act — the “fiscal cliff” deal enacted in January 2013 — includes a provision that “opens the door for employers to allow expanded in-plan conversions, but it’s not a requirement,” said Patti Balthazor Bjork, retirement research director at Aon Hewitt, in a media release. “However, it makes the Roth conversions more attractive for employees, so there will likely be increased interest and incentive for employers to offer them.”
The consultancy’s survey of large U.S. employers (those with more than 1,000 employees) revealed that:
• While almost half (49%) of respondents currently offer no Roth option, 29% of those that don’t offer a Roth said they were very or somewhat likely to add this feature in the next 12 months. Of those new adopters, more than three-quarters (76%) will add both Roth contribution and in-plan conversion features.
• Employers that already have a Roth option are likely to allow employees to make in-plan conversions to Roth accounts. Of those respondents that currently allow Roth contributions but do not offer in-plan conversions, more than half (53%) are very or somewhat likely to add this feature in the next 12 months.
• For companies that already allow Roth contributions and in-plan conversions for amounts not subject to early-withdrawal penalties, more than three-quarters (79%) are very or somewhat likely to expand the eligibility for in-plan conversions, allowing them for previously nondistributable amounts.
“While employers have steadily been adopting Roth features in recent years, the new law, along with a better understanding of Roth by both participants and companies, will encourage more plan sponsors to add these options in the near-term,” Bjork said.
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Electric blower vacuums recalled
Two Chinese-made blower vacuums, one sold at Home Depot and the other sold at Walmart, were recalled because they pose laceration hazards.
Homelite Consumer Products and the U.S. Consumer Protection Safety Commission announced the recall of certain Homelite electric blower vacuums.
The products, sold exclusively at Home Depot, posed a laceration hazard, according to the announcement. No injuries were reported, but objects that are drawn into the unit during vacuum mode can break through the plastic housing, posing a laceration hazard.
Homelite is offering consumers a free replacement blower vacuum. About 241,000 products are in the United States and 13,600 in Canada. The made-in-China products were sold exclusively at Home Depot stores nationwide and online at homedepot.com from February 2012 through December 2012 for about $40.
The Manufacturer is Changzhou Globe Tools Co. of China. The company also manufactured a similar product — also recalled — sold exclusively at Walmart stores. The Expert Gardener electric blower vacuums also posed a laceration hazard. It was recalled by OWT Industries.
Existing-home sales hold steady in January
Existing-home sales edged up in January, while a seller’s market is developing and home prices continue to rise steadily above year-ago levels, according to the National Association of Realtors.
Total existing-home sales increased 0.4% to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1% above the 4.51 million-unit pace in January 2012.
Existing-home sales are defined as completed transactions that include single-family homes, townhomes, condominiums or co-ops.
Lawrence Yun, NAR chief economist, said tight inventory is a major factor in the market. "Buyer traffic is continuing to pick up, while seller traffic is holding steady," he said. "In fact, buyer traffic is 40% above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country."
Total housing inventory at the end of January fell 4.9% to 1.74 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.
The national median existing-home price for all housing types was $173,600 in January, up 12.3% from January 2012, which is the 11th consecutive month of year-over-year price increases; that last occurred from July 2005 to May 2006. The January gain is the strongest since November 2005 when it was 12.9% above a year earlier.
Distressed homes — foreclosures and short sales — accounted for 23% of January sales, down from 24% in December and 35% in January 2012. Fourteen percent of January sales were foreclosures and 9% were short sales. Foreclosures sold for an average discount of 20% below market value in January, while short sales were discounted 12%.