Do generous, well-designed 401(k) plans make for better workers that improve employers' profitability?

Perhaps it's a chicken-or-egg question—do better-compensated employees make for a more talented and motivated workforce, or is it that more profitable companies can afford better retirement plans?

Irrespective, new analysis from T. Rowe Price suggests a strong correlation between high quality 401(k) plans and the ultimate productivity and profitability of the companies that sponsor them.

A review of plans across industries found that 401(k)s with a “Great” rating from BrightScope also claimed 20 to 80 percent higher profitability compared to plans with a poor rating.

“The cost of benefits continues to increase and chief financial officers are often engaged with their human resources teams to talk about the return on investment of the company's retirement plan, beyond talent acquisition and retention,” said Aimee DeCamillo, head of T. Rowe Price Retirement Plan Services, in a press release.

“Our research shows that there may be corollary benefits when companies invest in their 401(k)s—and disadvantages when they don't. Employees benefit from well-designed 401(k) plans, and the same employees directly affect corporate profitability,” she added.

Plans with a Great rating were found to have net income per employee that was 40 to 80 percent higher than companies with plans rated as average.

And revenue per employee was between 20 and 60 percent higher for companies with plans rated as great compared to plans with an average rating. Plans with a below-average or poor rating saw up to 80 percent less revenue per employee than the highest rated plans.

The study looked at 485 plans with at least $50 million in assets. T. Rowe also surveyed 22 CFOs as to whether they view a correlation between 401(k) plans and corporate performance.

Half of the CFOs viewed a well-designed 401(k) plan as influencing profitability, and half were skeptical that the correlation could be measured. Three-fourths of the CFOs said they would be open to the findings of further research.

“As both an asset manager and recordkeeper, we were able to tap the rigorous research capabilities of our investments team as well as our insights and expertise on 401(k) plan design to create this study, deriving actionable conclusions that can help guide capital allocation to benefits programs,” DeCamillo said.

“Most companies benchmark 401(k) plan metrics and corporate profitability separately. This research suggests that analyzing them jointly could provide greater insight into performance and better inform decision making,” she said.

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