For Your Benefit

Tax Reform Trickle Down Is Drip-Filling Employee 401(k) Plans

Employers look to grow business, loyalty with compounding financial investments.

By Patty Kujawa


anagement at Advance Financial considered bumping the matching contribution to its 401(k) plan last August but didn’t have the money to do it.

Then in December, President Donald Trump signed the Tax Cuts and Jobs Act of 2017 — also known as the tax reform law. The sweeping rule made the most significant changes to the tax code since 1986. Most notably for companies, it slashed the corporate tax rate to 21 percent from 35 percent. That increased many companies’ net income, allowing them to put that money to work for their businesses.

Tina Hodges

Advance Financial CEO Tina Hodges said that after the tax reform bill passed, the Nashville-based company circled back, ran the numbers again and realized they could raise the matching contribution. In January, the financial services company increased its 401(k) match dollar for dollar up to 5 percent of pay from 3 percent for its 630 active participants.

Anecdotally, Hodges added that since the bump in the corporate match, participants have increased what they are putting into their accounts.

“Increasing contributions to our 401(k) plan is a long-term investment in our people,” Hodges said.

Overall, the financial windfall for all U.S. employees hasn’t been overwhelming, yet the number of organizations passing through financial perks is not insignificant, either. Nearly 500 U.S. companies have said the new tax reform law has allowed them to invest in their workforces, restructure or make extra contributions to 401(k) plans, write bonus checks and give pay raises or other perks, according to the politically conservative taxpayer advocacy group Americans For Tax Reform. Meanwhile, nearly half of 333 large and midsize companies plan to boost employee benefits, total rewards and/or executive pay programs as a result of the law, a January survey by consulting firm Willis Towers Watson showed.

Two-thirds of the companies surveyed plan to make changes to benefit programs. The most popular changes include expanding personal financial planning, increasing 401(k) matching contributions and bumping or accelerating pension plan contributions.

Many large, publicly traded companies including Visa Inc., Anthem Inc. and Hostess Brands LLC have announced changes to the 401(k), but smaller companies are making sizable changes to their benefit programs as well.
In addition to Advance Financial, Pilgrim Bank in Cohasset, Massachusetts, gave full-time non-officers a $1,000 bonus and part-time employees a $500 check to their 401(k)s in February. Twenty-six people qualified for the benefit, said Chris McCourt, treasurer and chief financial officer.

“We knew this was something, as a result of the tax reform bill, that we wanted to do,” McCourt said. “Putting money into the 401(k) gives a much greater impact to our employees.”

For smaller companies, it’s early in the game to decide what to do, if anything, said Kathleen Kelly, founder and managing partner of Compass Financial Partners LLC. To create awareness, Kelly said her firm wrote a tax reform update in its first quarter letter to clients. Because there is intense competition for talent right now, employers need to think about creating incentives to retain and attract high quality workers.

One client is analyzing whether it can make an additional contribution to its 401(k) plan, she noted.
“Our clients are very interested in learning what others are doing,” Kelly said. “There is a sense of optimism in the business community. We are seeing so many other companies take action that I think there is a sense of not wanting to be left behind.”

For many of the larger companies, sweetening benefits were already in the works, said Gregg Levinson, senior consultant at Willis Towers Watson. For months, there was not a lot of certainty about tax reform, but there was confidence with company performance and ability to make investments in workers, he added.

Companies interested in enhancing retirement benefits for workers first need to look at plan documents to determine what is allowed, Kelly said. Other ways to help workers without needing to change plan documents include adding financial wellness programs or calculators.

“Our clients seem more open to spending in this area,” in the short term, Kelly said.

Giving employees a flat dollar bonus can be riskier than adding cash to 401(k) accounts, which may be a better way to reward loyal employees, Kelly observed. After a check is cashed, workers can take the money and quit; with the 401(k), vesting schedules, tax penalties or other terms might make it just hard enough for workers to have to wait to access the cash.

“This is an opportunity to put employees on a stronger financial ground for retirement,” Kelly said. “Getting balances to grow and compound over time is very powerful.”