Companies Boosting 401(k) Contributions to Retain Employees
Some companies in certain industries are using a new strategy to keep the best employees and motivate staff to save for retirement. According to an article in the July 17 edition of The Wall Street Journal, companies ranging from Microsoft Corp. to Host Hotels & Resorts Inc. are boosting contributions to their workers’ 401(k) plans, a move many firms have long resisted because of the greater costs.
The average company contribution to 401(k)s rose to an estimated 4.7% of employee salaries in 2016, up from 3.9% in 2015, according to data on 1,900 workplace retirement savings plans run by Vanguard Group. This was the highest percentage and biggest one-year jump since at least 2007.
The reasoning behind the boost in contributions is simple: Companies need to ensure that older, relatively expensive workers can afford to retire on time and make way for younger staff, according to retirement experts. Employees who don’t have adequate next eggs will stay in their jobs longer and add to a company’s overall healthcare costs.
Retirement plan advisers recommend that employees save about 15% of their salaries each year, but many U.S. workers still aren’t saving enough on their own. The average percentage set aside among Vanguard-run retirement accounts has dropped since 2007, largely because more new 401(k) savers enrolled at lower initial savings rates. As a result the average total employee and company contributions to workplace savings plans among workers who participate haven’t moved above 11% of salaries for at least a decade.
The complete Wall Street Journal article is at http://news.morningstar.com/all/dow-jones/us-markets/201707171739/us-companies-have-a-new-401k-fix-spend-more.aspx