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Research Study

The Value of the 401(k)

Does a Successful 401(k) Plan Influence a Company’s Profitability?

T. Rowe Price

It's a question T. Rowe Price wanted to answer. What we found was intriguing. The result: Significant correlations exist. Our research determined that there are significant correlations between 401(k) plan performance and corporate financial performance. 

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

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

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

The findings: Profits and plan performance 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) Plan 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: 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: 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: 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.

Research Study

Does a Successful 401(k) Plan Influence a Company’s Profitability?
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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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