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
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.
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.
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.
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.
Correlation isn’t the same as causality. We can’t say that building a better 401(k) plan alone will make your company more profitable. But there is strong correlation between the two, and the relationship is significant.
Contact your T. Rowe Price representative to find out how we can take your plan to the next level.