Scanning for news this morning, I came across an interesting post over at PlanSponsor.com. It’s editor Nevin Adams had received a note from a reader who’d had a light-bulb moment about using a recent tax reduction as a communication point to get 401(k) plan participants or nonparticipants to begin or boost contributions.
"It occurred to me that the temporary 2% reduction in the employee portion of the Social Security Tax is a great opportunity for participants to increase their 401(k) contributions without reducing their net pay," the reader noted, and also shared the communication he sent to plan participants:
"As part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 signed into law on December 17th, 2010, the employee portion of the Social Security Tax will decrease from 6.2% to 4.2% for all of 2011. This is a great opportunity for you to increase your 401(k) contribution by 2% and not see any decrease in your take home pay! In fact, since there is not tax withheld against the 2% you would put in your 401(k), your take home pay would still go up."
After putting the question to the PlanSponsor.com community, Adams shared that "several readers noted that lots of withholding changes take place at the beginning of the year, and so you may want to be careful about touting the 'no change' in take home pay angle.
"Additionally, a couple of readers noted that the expiration of the Making Work Pay federal income tax credit was reflected in the withholding tables — and, all other things being equal, some lower-paid workers could actually see a reduction in take home from that change – and attribute it to the change in withholding."
Both valid points, but still I’m intrigued. So, I’ll follow Adams’ lead and put the question to you: Is this temporary tax break one that you’d use to encourage employees to begin/increase contributions to your company’s 401(k) plan? Leave no stone unturned, I say, but share your thoughts for or against in the comments.
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