Defined Contribution

Share the windfall, invest in
retirement readiness

Mar 16, 2018

Many corporations are dealing with an unexpected opportunity: what to do with the extra capital they now anticipate as a result of December’s Tax Cuts and Jobs Act. Policymakers hope the bill will spur reinvestment and expansion, and they have been clear in wanting to see at least a portion of the windfall invested in American workers, specifically in the form of pay raises.

Every company’s priorities are different. If you decide to boost wages a little more than you had planned, there is no doubt employees will welcome the additional income. But we believe the tax cut windfall is also an opportunity to make a long-term investment in employees’ future retirement income.

From retirement plans to financial wellness

Connecting the tax windfall with improvements in the retirement plan sends a message to employees about the value you place on their long-term financial security. Defined Contribution (DC) plans were first intended as supplemental retirement savings to augment traditional pensions or social security income. They proved popular and became part of the baseline offer for attracting or retaining employees. Today, DC plans are the primary employer retirement vehicle, with 80% of Fortune 500 companies only offering these types of plans.

What’s more, as DC plans have increasingly become part of holistic financial well-being programs, plans have become a key driver of corporate culture and a measure of corporate stewardship – which only amplifies the impact increased employer contributions may have. With traditional pension plans falling away, DC plans have also evolved in importance and are now central to the job of building retirement readiness for millions of U.S. workers, giving them broader social significance beyond the company walls.

Unfortunately, our 2018 DC Pulse Survey found that 54% of plan sponsors are concerned that their participants will not be ready for retirement - a 25% jump from last year’s survey1. At the same time, our survey found that plan sponsors are taking action to enhance their plans - with 54% considering or enacting improvements in the last two years alone. The tax windfall is well timed for plan sponsors with plan enhancements on the agenda.

Long-term good, long-term good will

Investing in your employees’ long-term financial well-being, whether through an increased company match or a direct profit sharing contribution to retirement accounts, can have immediate, pre-retirement benefits. Simply knowing they are better prepared for retirement can reduce stress, especially for participants in the later stages of their careers.

Investing in the retirement plan is also good for the employer. In addition to strengthening corporate culture and corporate stewardship, having retirement-ready employees can improve workforce management. Using a portion of this high profile tax cut revenue to improve retirement readiness can elevate your organization internally and help you stand out as a leader in your industry. 

Anne Ackerley
Managing Director, Head of BlackRock's U.S. and Canada Defined Contribution Group
Anne F. Ackerley, Managing Director, is head of BlackRock's U.S. & Canada Defined Contribution (USDC) Group. She is responsible for the development and ...