As more companies announce they will increase retirement plan benefits for employees, one recordkeeper has created a tool for plan sponsors and advisors to calculate how these changes will affect them. (Photo: Shutterstock)

As the first earnings season under the new tax law continues, the list of publically owned companies investing in retirement plans continues to grow.

Last week, Honeywell, Inc. announced in an earnings call that it would be upping its employer match to the company’s $13.3 billion 401(k) plan, but it did not say how much. Executives did say the company plans to repatriate $7 billion in cash.

The tax bill passed last December taxes repatriated cash at 15.5 percent, instead of the 35 percent rate overseas earnings were previously taxed. The overall corporate rate was cut to 21 percent.

Visa, Aflac, SunTrust Bank, and Nationwide have also said they would be passing some savings on their tax bill onto participants in 401(k) plans. Fed Ex announced a $1.5 billion voluntary contribution to its defined benefit plan.

More companies can be expected to follow suit, according to a new survey from Willis Towers Watson.

More than a quarter of large and mid-sized plan sponsors said they were considering upping employer matches to 401(k) plans, according to a survey of large and mid-sized plan sponsors the consultancy conducted this month.

Impact on S-Corps, smaller businesses less certain

 

Whether smaller plans follow suit remains to be seen.

Large corporate sponsors with an international footprint have the added advantage of using repatriated cash to potentially fund more generous 401(k) offerings.

The new law also cuts taxes on Subchapter S corporations and other privately held so-called pass-through businesses. But the tax cuts only apply to domestic earnings.

A portion of the profits that flow through to S-Corp owners will now be taxed at 20 percent, or nearly half that highest marginal rate some small business profits were previously taxed at.

Some industry advocates have speculated that the lower rate for privately owned pass-through businesses creates a disincentive to sponsor retirement plans. S Corps now will deduct retirement plan contributions at a considerably lower rate, spurring fears that owners will opt to save in non-qualified accounts, as their deduction for sponsoring a plan becomes less valuable.

Others have suggested lower small business tax rates will lead to less generous plan design.

Real time tool for calculating plan costs

 

But many in industry are skeptical that small business owners will drop plans, citing data that shows few owners sponsor retirement plans strictly for the tax advantage, and instead do so for the wellbeing of employees, and the need to recruit and retain the best talent.

For sponsors large and small weighing new options under tax reform, advisor plan specialists have a new tool to put real-time benchmarks in front of sponsors.

Empower Retirement, a recordkeeper to $529 billion in retirement plan assets, has rolled out PlanVisualizer, an interactive application that projects the replacement income existing plan design will generate for workers, and how changes in plan design could positively impact savings outcomes.

Increasing matches, and adding automatic enrollment and escalation features are plan design practices often championed from the sidelines by service providers and the mutual fund industry.

But for plan sponsors, those options come with a cost. The PlanVisualizer app allows advisors to calculate the cost of enhanced plan design features and increased company matches over time.

The tool is available through Empower’s advisor platform. But all plan advisors can access it, regardless of whether they sell Empower’s retirement platform.

“Empower has made PlanVisualizer available to all advisors and consultants – regardless of client status and free of charge – because we believe strongly in helping every employer optimize their retirement plans for their workforce,” said Ed Murphy, president of Empower, in a statement.