Roth elective deferrals have been an option in DC plans since 2006. In 2010, federal tax legislation offered another Roth option to a small segment of investors, with certain distributable assets, that would convert existing pre-tax balances to Roth savings.

The American Taxpayer Relief Act of 2012 expanded this feature to all participants that are offered the option in their plan. To offer Roth in-plan conversions a plan sponsor must also offer Roth elective deferrals, and if participants decide to take part in an in-plan conversion, they need to pay income tax on the money that is converted.

In its research, Vanguard found that the adoption of the Roth feature in DC plans has grown steadily since the feature's introduction, but participant utilization remains low. Large plans were more likely to offer Roth elective deferrals.

The Roth conversion differs from Roth deferrals in that participants can convert larger amounts of money at once. Because of that, the investors who take advantage of the in-plan conversion will have to have the financial resources at their disposal to pay the large lump-sum tax bill that will come due after the conversion takes place.

Vanguard anticipates that the Roth feature will appeal to successful plans that have high levels of savings and well-diversified plan assets that want to add incremental plan features for consideration by participants.

For plan sponsors who have low employee participation in their plans or poorly diversified assets, the Roth feature won't be as important as boosting savings and investment behaviors, the report said.