Tax Reform- an unexpected opportunity to boost retirement savings
While it is most likely too early to quantify the impact of tax reform on your business, it is important to be aware of the various ways it could be used to benefit employees, should you choose to go that route. Tax reform potentially presents an exciting and unexpected opportunity for retirement plan sponsors to improve their benefits packages, helping to better prepare employees for retirement.
The raises and bonuses that we are hearing about in the news certainly help with employee morale and organizational goodwill, so those may be considered as well. However, the retirement plan offers alternative ways of accomplishing these same goals, which may have more of a long-term impact. Here are three ideas.
- Increase the employer contribution (or implement one if one does not exist). Particularly with a payroll-allocated match, participants will still see an immediate gain. And unlike with a raise or bonus, they are not able to take it and spend it right away, so they will profit even more in the future. In addition, there are no FICA taxes on an employer contribution, so both participants and plan sponsors will realize an additional financial benefit. Several large employers have already taken this route.
- Participants’ tax savings should result in a little more money in their paychecks, making this a great time to talk about increasing their retirement savings. By encouraging employees to save more, an employer that commits more resources to the education program can help participants out dramatically in the long haul, and any increase in matching contributions that may result can potentially be absorbed, at least in part, by the employer’s tax savings.
- Many employers have held off on launching an overall financial health and wellness program because of the additional cost; however, employer tax savings may afford the opportunity to consider such a program. Financial wellness education and programs not only boost retirement savings, but can also lead to less stress in employees’ lives, which pays off for the employer in higher productivity and in other ways.
The cost of a plan participant not being able to afford to retire can be high, for both the employee and the employer alike. Why not take this opportunity to better prepare your employees for retirement?
Have a question about your organization’s retirement plan? Ask us a question! Our firm was built on simplifying the complex.
Scott Gehman, ERPA, CEBS
Retirement Plan Consultant
All investment advisory services are provided through Conrad Siegel Investment Advisors, Inc. (“CSIA”), a fee-only investment adviser registered with the U.S. Securities and Exchange Commission. This article contains general information about recent US tax reform and should not be relied upon as the basis for any investment, tax or legal decision. Please consult with your financial or accounting professional.