The handful of plan sponsors that have stepped up matches to 401(k) plans in the wake of the tax bill do not yet constitute an industry-wide trend.
Visa, Aflac, and SunTrust Bank announced increased employer matches along with other bonuses since the reform bill was signed in December. Nationwide Mutual Insurance Co., which has a retirement plan recordkeeping arm that services more than 35,000 small plans, said it would increase its match to 50 percent of the first 7 percent of pay employees defer, up from the first 6 percent.
Time will tell if other sponsors follow suit, says Geno Cufone, senior vice president for retirement administration at Ascensus.
But the reality is that sponsors had been increasing plan contributions prior to tax reform.
Data from the Dresher, PA-based recordkeeper and third-party administrator, which services about 45,000 retirement plans, shows 81 percent of the firm’s employer clients funded a contribution in 2016.
That was an increase from 69 percent in 2015, and 53 percent in 2013—a nearly 30 percent increase in just three years.
Ascensus started tracking that data point in 2008, when some employers dropped plans or reduced matches in the wake of the financial crisis.
By 2012, many of those sponsors were ready to reinvest in the retirement security of their workers. Cufone calls the increases in employer contributions since “dramatic.”
“Financial markets have been good, leading to better balance sheets, and companies are choosing to share some of that success to the noble goal of prepping their employees for retirement,” Cufone told BenefitsPRO.
The tax bill reduced the corporate tax rate from 35 percent to 21 percent, and substantially reduced tax rates on owners of Subchapter S-Corporations, LLCs, and sole proprietorships.
In the years leading up to the legislation, Ascensus saw increases in the number of start-ups and other sponsors establishing safe harbor plans with a company match, for the purpose of alleviating the administrative burden of offering a retirement plan.
Cufone chalks that trend up to a generation of younger workers that are savvier than their predecessors when it comes to retirement issues.
“The younger generation is smarter—they’re looking for employers to establish that match,” he said.
The broad education movement on plan design best practices throughout the retirement industry has also moved the needle.
Ascensus’ sales group commonly recommends discretionary matches, allowing employers to issue annual bonuses through 401(k) plans. The strength of financial markets has incentivized more plans to make discretionary contributions than ever before, said Cufone.
For the employers that reinvested in plan contributions prior to tax reform, there may not be incentive to make further increases, at least not immediately.
“How much room is there to go for some of these employers—I’m not sure,” said Cufone.
Visa is now matching 200 percent of the first 5 percent of salary deferred by participants.
That plan holds $1.7 billion in assets. Ascensus’ “bread and butter” is with much smaller plans, with an average of 75 lives and $2.5 million in assets. “What Visa and other large sponsors have done may not correlate to smaller businesses,” added Cufone.
Small and large employers may also be taking a wait and see approach, allowing for the effect of tax reform to be absorbed by the economy, markets, and balance sheets before opting to increase contributions. It’s possible that tax reform’s impact on plan design may not be seen for another year, or more, thinks Cufone.