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Defined Contribution

Sponsors cite new tax law in improving 401(k) plans

The ink was barely dry on President Donald Trump's signature when several companies announced the new tax overhaul law had prompted them to enhance their 401(k) plans and make other benefit changes such as raising the minimum wage or offering one-time bonuses.

The handful of companies taking action so far on their defined contribution plans represents an outlier to the retirement plan universe. Executives at some of the companies said they had been contemplating improvements, noting the tax law overhaul provided a catalyst for action.

"We were considering increasing the match, along with other benefit enhancements," Michelle Barrett, chief retail banking and marketing officer of Peoples Bancorp, Bellingham, Wash., wrote in an email response to questions. "The tax reform just expedited the process."

Her company announced this monthit would raise the employee match to its 401(k) plan to 8% of annual pay from 7%, effective immediately. It provides a dollar-for-dollar match, and the match is applied quarterly.

The Peoples Bank Salary Investment & Profit Sharing Plan had assets of $30.5 million assets by the end of 2016. (Assets of DC plans cited in this article are based on Dec. 31, 2016, data from the Form 5500 reports filed with the Department of Labor.)

"We analyze our benefits annually using various industry peer surveys," wrote Ms. Barrett, whose company also will raise minimum wage pay to $15 per hour for all hourly employees on Feb. 1. "Strategically, we strive to offer above-average benefits for our employees and position ourselves as a preferred employer."

Executives at Advance Financial, Nashville, Tenn., had looked into enhancing the corporate match to their 401(k) plan in August "but didn't have the excess funds to do it at that time," Tina Hodges, CEO and chief experience officer,wrote in an email.

"As we realized the tax cuts would become reality, we circled back and ran the numbers again on increasing the 401(k) ... to see if we could afford to do it," she wrote. "Thankfully the answer was YES!"

The company raised the corporate match to 5% of participants' annual pay from 3% on a dollar-for-dollar basis. The new match took effect "immediately on the first dollars contributed in 2018," Ms. Hodges wrote. The match is made quarterly. The Advance Financial Employee Retirement Services Plan had assets of $2.3 million.

Advance Financial — which provides open line-of-credit loans and other financial services — also improved its profit sharing, which is paid quarterly and considered a taxable bonus payment. It was raised to 5% of pay from 3%, affecting 85% of employees, she wrote. The company also said it would raise its contribution by 8% to the Advance Financial Foundation, which donates to non-profit organizations in communities served by the company.

"Increasing contributions to our 401(k) plan is a long-term investment in our people," Ms. Hodges wrote. "Increasing the quarterly profit share will put immediate dollars in the pockets of our families. And increasing our community giving will bring benefit to many more people across our state."

Many DC industry members said that although some sponsors might be talking about tax law-inspired changes to their 401(k) plans, few have acted — a practice in keeping with their methodical nature.

"My 31 years of experience in a plan sponsor role confirms that, generally speaking, a decision to increase the employer financial support to a 401(k) plan is a long-term decision made after extensive analysis," said J.M. "Jack" Towarnicky, executive director of the Chicago-based Plan Sponsor Council of America, adding he was "not aware of any widespread discussion among plan sponsors" to enhance 401(k) plans due to the tax law.

Plan design changes, he added, aren't made in a vacuum. Sponsors' analysis can include evaluating plan performance, assessing tax code changes, determining the impact of regulatory changes and looking at the plan-design revision in the context of other employer benefits.

DC consultant Sarah Fitzmaurice said clients "are in the exploratory stages" of determining if the tax law could spur changes in their 401(k) plans. "They're not rushing it," said Ms. Fitzmaurice, the San Francisco-based U.S. defined contribution segment leader for Mercer. "They are looking for the best way to have a long-term impact." Among her clients, "the fastest implementation of a plan design change is three months" from initial discussion to final action, she said. Based on the news of recent 401(k) plan improvements, she said raising corporate matches made sense because "they want their employees to have some skin in the game."

Improving the match is a "fantastic idea" because it can raise employee morale and add more money to retirement savings, added Gregg Levinson, a Philadelphia-based senior retirement consultant for Willis Towers Watson PLC.

Higher corporate matches were popular among several companies that recently announced 401(k) enhancements.

Aflac Inc., Columbus, Ga., announced late last month it would boost its corporate match to 100% on the first 4% of an employee's contribution to the $386 million Aflac Inc. 401(k) Savings and Profit Sharing Plan. Aflac alsowill make a $500 one-time contribution to each retirement account. Aflac didn't describe the timing of the match payments or deliberations taken by plan executives, other than to say the tax law provided an "opportunity to increase our investments in initiatives that reflect our company values." John Sullivan, a company spokesman, didn't respond to requests for comment.

Nationwide Mutual Insurance Co., Columbus, Ohio, said it was increasing the company match to its 401(k) plan, thanks to the tax law. "Understanding the importance of planning for and living in retirement, starting in 2018 Nationwide will increase its 401(k) company match for all associates," Joe Case, a company spokesman, wrote in an email response to questions.

"We will move from a 50% match on the first 6% of an associate's contribution to 50% on the first 7%," he wrote. The adjustment will take place in the first quarter. The Nationwide Savings Plan had $5.39 billion in assets.

Nationwide also will provide a one-time "discretionary bonus of $1,000" to many workers employed on Jan. 3, 2018, "subject to our policies," he added.

Another match-raiser is Visa Inc., Foster City, Calif., which said itwould increase the match to 200% of an employee's salary up to 5% of pay. Visa has been offering a match of 200% of salary up to 3% of an employee's pay.

Visa attributed the improvement to the new tax law but didn't say when the change would take effect or what deliberations were taken by plan executives. Visa spokeswoman Stephanie Yamada declined to comment.

The Visa 401k Plan had assets of $1.69 billion.

SunTrust Banks Inc., Atlanta, took a different approach, announcing in late December it would make a one-time contribution of 1% of pay to participants in the company's 401(k) plan. The contribution will be made March 15, regardless of how much participants put into their retirement accounts, said spokeswoman Sue Mallino. "If they don't have an account, we'll set one up for them," she said.

SunTrust took this and other actions to "provide sustainable long-term benefits" for employees, said Ms. Mallino, who didn't offer details on the company's deliberations to improve the 401(k) plan. The changes were made due to the "expected benefits of tax reform," she wrote.

The SunTrust Banks Inc. 401(k) Plan had $2.85 billion in assets.

The tax reform law presented sponsors with "an ideal time" to review their plan designs, said Sue Walton, the Chicago-based senior defined contribution strategist for Capital Group, adding that her clients haven't acted yet. Making changes "is not easy and not quick," she said. Adjustments could take "a quarter or two if not longer" depending on the complexity of the plan revisions.

Consultant Michael Francis said most of his DC clients will be meeting in the next few weeks to review 2017 and plan for this year. The potential tax law impact "fits into the wheelhouse of things that should be discussed," said Mr. Francis, president and chief investment officer of Francis Investment Counsel LLC, Brookfield, Wis.