Many employees could see enhanced benefits and higher wages, new survey indicates.
More than seven months after the passage of the Tax Cuts and Jobs Act, many Americans are wondering if corporations will use their newfound capital to offer workers higher wages, enhanced benefits, and additional job opportunities. According to a new survey of senior finance executives, that’s exactly what many companies have in mind.
The survey, conducted by CFO Research in collaboration with Prudential Financial, found that among senior finance executives who expect the new tax legislation to generate excess capital, 62 percent say their companies “will increase wages this year as a direct result of the new tax law.” In addition to sharing potential tax savings with employees, such pay hikes may also be driven by a tightening labor market.
By comparison, only 40 percent of survey respondents said they plan to return excess capital to shareholders via increased dividends or stock buybacks.
But the ways companies are likely to share this capital with employees isn’t limited to paychecks. More than half of survey respondents (57 percent) say that they plan to increase their company match to a defined contribution or 401(k) plan due to tax reform.
Michael Knowling, Prudential’s head of client relations and business development, said this finding corresponds to what he’s hearing from clients: “We’ve seen client companies take advantage of the new tax law by providing employees with increased retirement benefits, such as bigger matches for their 401(k) programs.”
One such client is Cigna, which announced it is permanently increasing its company 401(k) match by 1 percent annually for its 30,000 employees. “The net financial benefits of U.S. tax reform are an opportunity for us to continue to demonstrate our commitment to our employees.” said John Murabito, Cigna’s executive vice president for Human Resources & Services.
Corporations are also planning to use excess capital to help secure the retirement benefits of workers with traditional defined benefit pension plans. Nearly two-thirds (64 percent) of senior finance executives say they expect to use savings from the new tax legislation to increase funding of their pension plans. Nearly three-quarters (74 percent) of respondents say they are likely to make a “substantial DB plan contribution” by September 15, 2018, the final date they can take a larger tax deduction under the law.
Survey respondents came from a variety of industries, led by financial services/real estate, health care, and auto/industrial/manufacturing. They consisted mostly of chief financial officers, directors of finance, and vice presidents of finance. A majority of respondents came from companies with $250 million to more than $5 billion in annual revenues.
Higher wages and enhanced benefits, if provided, should improve the financial wellness of employees, helping not just workers but also the companies that employ them, through an increased sense of financial confidence resulting in increased productivity, reduced absenteeism, and lower healthcare costs.
62% Will increase wages this year as a direct result of the new tax law.
82% Believe that increasing employee financial wellness will improve their organization’s bottom line.
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