Retirement Pulse

The Value of the 401(k)

Executive Summary

Does a successful 401(k) plan influence a company's profitability? It's a question T. Rowe Price wanted to answer. Our research determined that there are significant correlations between 401(k) plan design and corporate financial performance existing within and across industries, regardless of company size.1

20% - 80%

Higher corporate profitability is associated with companies with "great" 401(k)s

Up to 80%

Lower corporate profitability is associated with companies with "poor" 401(k)s

Significant Correlations

Significant correlations exist within and across sectors, no matter the size of the company

The Findings: Profits and Plan Design Go Hand in Hand

We evaluated the relationships between common corporate financial performance measures (used by CFOs) and markers of successful 401(k) plans (used by Human Resources):

Corporate Financial Performance Measures

401(k) Plans' Success Markers

Gross margin

Company generosity (match or other employer contributions)

Net income per employee

Salary deferral

Gross profit per employee

Participation

Revenue per employee

Account balance

More information about how we approached the research is available in our white paper.

Finding #1
Finding #1: There’s a correlation between higher gross margins and high-performing 401(k) plans.

Regardless of a plan’s size or a company’s industrial sector, companies with great 401(k) plans in terms of company generosity, salary deferrals, participation, and account balances are more likely to have significantly higher gross margins than average plans.

Finding #2
Finding #2: Net income per employee indicates that investing in the 401(k) plan could correlate to increased profitability.

Companies with "below average" or "poor" 401(k) plans are more likely to have lower net income per employee, while companies with above average or great plan attributes are more likely to have higher net income per employee.

Finding #3
Finding #3: Well-designed and high-performing 401(k) plans can influence employee behavior.

No matter which measure of profit or income we examined, having a great 401(k) plan is potentially an advantage to the company’s bottom line, while having a poor plan similarly is potentially a disadvantage.

Read the Research

Infographic of Key Findings

Our data set included plans with more than $50 million up to $36 billion in plan assets. In our regression analysis, we controlled for plan size, meaning that the correlations we report will hold irrespective of plan size. We suspect that similar correlations exist for plans with assets below $50 million and over $36 billion. 

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