The recently enacted Tax Cuts and Jobs Act of 2017 (commonly known as tax reform) provides an estimated $1.456 trillion in tax relief, much of it to corporations.
How are companies spending this windfall?
Hundreds of firms have announced plans to reinvest in their business, increase charitable contributions, give bonuses and/or salary increases to employees, and pass along their tax savings to customers.
Sometimes lost in these announcements is a longer-term commitment many companies have made to their employees’ retirement security: a significant number of American companies — in all sectors — have publicly announced plans to boost their 401(k) and other retirement plan contributions due to tax reform.
Most Companies Are Considering Changes to Their Benefit Programs
A recent Towers Watson survey found 26% of employers are considering or taking steps to increase their 401(k) contributions due to tax reform, and 19% are doing the same with pension plan contributions.
The numbers go even higher when including health, family leave and other benefit arrangements. The January 2018 survey of 333 large and mid-size employers also discovered that 66% are planning, considering, or have already made changes to their overall benefit programs as a result of tax reform.
The most common changes being considered include:
- Addressing pay-gap issues (36%)
- Expanding personal financial planning (34%)
- Introducing a profit-sharing or one-time bonus payout to all employees (21%)
Great Opportunity for Advisors and Sponsors to Strengthen DC Plans
For decades, government regulation of the U.S. retirement plan system has sought to improve retirement security. Although tax reform has many implications for investors, it doesn’t make significant changes to the retirement system.* It has, however, already boosted efforts to improve the retirement savings picture.
Advisors, consultants and plan sponsors can stay ahead of this curve by making use of this opportunity to look at plan menu and design issues now with an eye toward improving the participant experience. Here are some potential action steps:
- Simplify menus to improve participant engagement.
- Assess the target date fund to make sure it meets participant needs.
- Include retirees in plan if company demographics support it.
To make the most of this opportunity, look at these five keys to better participant outcomes to keep retirement security top of mind for the plan.
* The only significant qualified retirement plan change included in the Tax Cuts and Jobs Act of 2017 is a rule allowing participants who terminate employment with a 401(k) plan loan to extend the deadline for rolling over the outstanding amount tax-free to an IRA from the current 60 days to the due date of their tax return for the applicable year (Source: Winston & Strawn LLP, "Benefit and Compensation Provisions in the Tax Cuts and Jobs Act," December 29, 2017).