4 reasons employers should use that corporate tax cut for a larger 401(k) match

  • Amid speculation as to how U.S. corporations will use their tax reductions, employers might consider upping their company match programs for 401(k) savers on their payrolls.
  • Research has found the 401(k) match is one of the most important benefits employers can provide to workers.
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Today thousands of controllers, chief financial officers and finance people are discussing ways to best use that corporate tax reduction that was handed to them before the holidays. To help them in their discussions, I have outlined four reasons why they should consider using part of that corporate tax reduction to increase or start up a 401(k) plan employer match.

1. Increasing or starting a match only helps to improve your employee's retirement outcomes. Recent research from the Employee Benefit Research Institute indicates that an employer match was 73 percent "very likely or somewhat likely" to help non-savers save for retirement.

2. An employer match is not going to be wasted. With a vesting schedule, any employees who leave prior to fully vesting will have those non-vested dollars recouped by the employer to be used to offset the cost of the match in the future or decrease plan costs.

3. Employees place high value on this benefit. Research from EBRI has sited the employer retirement plan as the second most important benefit employees receive from their employer. Putting more money behind a program your employees already value would help them appreciate the benefit even more. Better to back a winning horse than on one that employees may not appreciate.

4. Nearly three out of four 401(k) plans provide an employer match. During the financial crisis, many of those employer matches were reduced or eliminated altogether. Since then, many have been increased.

However, there is a certain section of plans that have yet to get their employer matches back to where they were prior to the financial crisis. Data from a recent BrightScope/ICI study show that in 2006 78 percent of all plans offered an employer match, and as of 2014, that was back up to 77 percent.

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There are two 401(k) plan segments where they have yet to get back to where they were in 2006. For plans less than $1 million in assets and between $1 million and $10 million, there are still fewer of them providing a match than in 2006. It is likely that many companies with plans this size are small businesses that file as an LLC and will be receiving a tax reduction in 2018.

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It's no secret that many Americans are struggling to save for retirement. They may not communicate it to you, but this is an issue that weighs on all employees. Consider the items provided above, and please think about diverting part of your tax reduction to investing in your employees' retirements. Believe me, they will thank you later.

By Aaron Pottichen, president of retirement services at CLS Partners

Financial Advisor Hub

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