Tax cut spurs employers to boost 401(k) contributions
Following one after the other, large employers including Wal-Mart, Aflac and SunTrust have announced significant compensation and benefits changes and attributed them to the Tax Cuts and Jobs Act, which President Donald Trump signed into law in December.
Experts expect hundreds of other employers to join suit.
A new study from global consulting and advisory firm Willis Towers Watson found that about half of 333 large and mid-sized companies polled plan on making changes to their employee benefits, compensation, total rewards and executive pay programs within the next year.
All told, 66% of employers surveyed have either made changes to their benefits packages or are considering making changes. The most common changes are expanding personal finance planning (34%), increasing 401(k) contributions (26%) and increasing or accelerated pension plan contributions (19%), according to WTW.
About 22% of employers say they plan on addressing pay gap issues — a hot topic in the wake of the #MeToo movement and the public firings of top CEOs, editors and TV anchors, politicians and chefs — as part of a broad-based approach to compensation, according to the report.
“The tax reform law is creating economic opportunity to invest in their people programs,” says John Bremen, managing director of human capital and benefits at Willis Towers Watson. “While a significant number have already announced changes to some of their programs, the majority of employers are proceeding to determine which changes will have the highest impact and generate the greatest value.”
Although the Tax Cuts and Jobs Act slashed the corporate tax rate to 21% from 35%, one expert says the decision of where to place those extra savings is going to vary by employer.
“Clearly you have that situation where there has been a tremendous amount of activity,” says Jack Towarnicky, executive director for Plan Sponsor Council of America. “I haven’t seen a comparable situation in the past where somebody announced a particular change and so many others have moved in the same direction. I think it would be as varied as the enterprises themselves where they deploy any corporate reduction.”
Some companies, such as Boeing, Disney and MidWestOne Bank, announced one-time bonuses and student loan repayment contributions, respectively, but said those decisions were not made with consideration to the tax reform.
The heavy lift of raising retirement benefits
Any changes to a company’s employee benefits plan require analysis and strategy to determine the predicted costs, which is more time-consuming than giving every employee a one-time bonus, Towarnicky says.
“There have been a handful of employers that have announced changes in 401(k) savings plans, but it’s clearly dwarfed by the number of employers that announced one-time bonus payments,” he says. “There is a difference between a one-time action and a change to your 401(k) match. It is reasonably predictable if you’ve got a match and you’re going to increase it.”
Employers may also apply those extra savings to voluntary or employer-sponsored benefits, a growing trend for 2018, and wellness initiatives that transcend the benefits package.
Companies with larger, campus-like office buildings are beginning to invest in bike trails around the area and ergonomic work stations, says Catherine O’Neill, senior healthcare consultant at Willis Towers Watson.
Employers are “trying to blend their work environment with their benefits strategy or wellness strategy to make it more successful,” O’Neill says.
While the changes will remain to be seen, Towarnicky warns employers faced with reinvesting their tax savings that those rates may not remain in effect indefinitely.
“Too many times, particularly when it comes to retirement, people develop expectations,” he says. “Any reductions [to benefits or compensation] have a negative impact on employee relations.”