As the economy is in the early phases of absorbing a dramatic cut to the corporate tax rate, more sponsors of 401(k) plans are considering raising contributions, according to a survey from Willis Towers Watson.
More than a quarter of employers reported they have, or are considering, increasing contributions in light of the windfall from the tax bill passed last December, which cut the corporate tax rate from 35 percent to 21 percent.
And 34 percent said they are considering expanding financial education programs for workers. About 20 percent said they were considering accelerating contributions to defined benefit plans, according to the survey, which queried 333 large and midsized employers.
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To date, a handful of companies have announced increased contributions to 401(k) plans. A host of others have announced one-time bonuses, and wage increases for employees on the lower end of pay scales.
"When we drill into the data, we find companies are really taking a deep look at their full benefits portfolios," said John Bremen, managing director, human capital and benefits at Wills Towers Watson. "And the other thing we are seeing is companies being very thoughtful about their options."
WTW's survey is the first hard data to emerge from industry on how companies will invest in compensation and benefits packages in light of lower tax rates. "There's been tremendous supposition, but until we had some hard data I was unwilling to read too much into the anecdotes," Bremen told BenefitsPRO.
Not all companies will benefit from lower tax rates, noted Bremen. Still, more than two-thirds of those surveyed said they are planning or considering making changes to benefit programs.
"When we look back a year from know, I think we will see a whole host of companies that have made enduring changes to benefits packages," he said.
Enhanced 401(k) benefits make for a more permanent benefit than the one-time bonuses many companies have made so far. Bremen thinks those that have issued one-time cash payouts may not necessarily be done sharing the wealth from tax reform.
Some companies have wanted to reinvest in benefits programs for a while, but have not been in a position to, said Bremen.
"A typical large company can spend billions on compensation and benefits packages a year," he said. "We have some pretty firm economic and productivity data that links employee engagement with productivity quality, customer service outcomes, and ultimately better results in companies' bottom lines. I think these investments will yield positive outcomes, so long as companies are making the investments in rational ways. This is a unique opportunity."
Workers too are seeing the headlines announcing cash and benefit increases. More will be expecting to share in the windfall, which could also impact employers' decisions.
"They see the news too, and they're waiting for the benefits of tax reform to trickle down the them," said Bremen.
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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.
