When Aflac Inc. announced this week that it was doubling its 401(k) match in the wake of the new tax bill, it was the most recent of a growing list of companies pledging to pass new revenues from lower taxes on to employees.
But the Columbus, Georgia-based provider of voluntary insurance products was the first to publically direct new investments to its retirement plan.
The company will increase its match from 50 percent to 100 percent of the first 4 percent employees defer to retirement accounts.
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That change will undoubtedly get some of Aflac's 5,400 active participants closer to a 10 percent savings rate, and may push some over the threshold that advisors say is the minimum that must be saved annually to guarantee a secure retirement.
Aflac's plan held $386 million at the end of 2016. In that year, $36.3 million in contributions were made to the plan–$10.7 million from the company, and $24.1 million from participants.
That means the average participant contribution was about $4,444, or more than 4 percent for a salaried participant making $100,000. Under the new match scheme, Aflac will chip in another four grand, moving that worker to a savings rate of about 8.5 percent, up from 6.5 percent under the old match.
A participant making $50,000 that can manage a 4 percent match—or $2,000—will now be saving $4,000 under the new match, or 8 percent of income.
The tax bill of course lowers the marginal corporate tax rate from 35 percent to 21 percent.
But as was pointed out throughout the debate over the tax bill, corporations' effective tax rates are often substantially lower than 35 percent.
Estimates vary, but the Treasury Department says the average federal effective tax rate for all industries between 2007 and 2011 was 22 percent. That average does not account for corporate state and local taxes, or taxes on earnings overseas.
Aflac's effective tax rate has been considerably higher—34.5 percent, according to the company's third quarter earnings report.
That begs an important question for the retirement industry. Those sectors of the economy with higher effective tax rates will arguably be the greatest beneficiaries of corporate tax reform.
Will plan sponsors within those sectors be most inclined to use the lower rate to bolster their defined contribution retirement programs?
Here is a look at the 10 sectors of economy that have the highest effective tax rates, according to analysis by New York University's Stern School of Business, which was released at the beginning of 2017.
The below rates represent the average of only those companies that posted profits. Economists at Stern examined 44 sectors and subsectors of the economy. The average effective tax rate for those that posted profits was 26.22 percent.
1. Precious metals: 90.15 percent
2. Retail (building supply): 38.63 percent
3. Health care support services: 38.15 percent
4. Trucking: 37.49 percent
5.Telecom (wireless): 37.2 percent
6. Cable TV: 37.2 percent
7. Shipping and marine: 36.76 percent
8. Transportation (railroads): 35.87 percent
9. Retail (automotive): 35.73 percent
10. Environmental and waste services: 35.55 percent
Publishing, and Business and Consumer Services, rounded out the list of those sectors with effective tax rates above 35 percent.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
