Capital Ideas

Investment insights from Capital Group

Defined Contribution
Why 25 companies just increased their retirement plan contributions

The recently enacted Tax Cuts and Jobs Act of 2017 (commonly known as tax reform) provides an estimated $1.456 trillion in tax relief, much of it to corporations.

How are companies spending this windfall?

Hundreds of firms have announced plans to reinvest in their business, increase charitable contributions, give bonuses and/or salary increases to employees, and pass along their tax savings to customers.

Sometimes lost in these announcements is a longer-term commitment many companies have made to their employees’ retirement security: a significant number of American companies — in all sectors — have publicly announced plans to boost their 401(k) and other retirement plan contributions due to tax reform.

Most companies are considering changes to their benefit programs.

A recent Towers Watson survey found 26% of employers are considering or taking steps to increase their 401(k) contributions due to tax reform, and 19% are doing the same with pension plan contributions.

The numbers go even higher when including health, family leave and other benefit arrangements. The January 2018 survey of 333 large and mid-size employers also discovered that 66% are planning, considering, or have already made changes to their overall benefit programs as a result of tax reform.

The most common changes being considered include:

  • Addressing pay-gap issues (36%)
  • Expanding personal financial planning (34%)
  • Introducing a profit-sharing or one-time bonus payout to all employees (21%)

Great opportunity for advisors and sponsors to strengthen DC plans

For decades, government regulation of the U.S. retirement plan system has sought to improve retirement security. Although tax reform has many implications for investors, it doesn’t make significant changes to the retirement system.* It has, however, already boosted efforts to improve the retirement savings picture.

Advisors, consultants and plan sponsors can stay ahead of this curve by making use of this opportunity to look at plan menu and design issues now with an eye toward improving the participant experience.

Here are some potential action steps:

To make the most of this opportunity, look at these five keys to better participant outcomes to keep retirement security top of mind for the plan.

* The only significant qualified retirement plan change included in the Tax Cuts and Jobs Act of 2017 is a rule allowing participants who terminate employment with a 401(k) plan loan to extend the deadline for rolling over the outstanding amount tax-free to an IRA from the current 60 days to the due date of their tax return for the applicable year (Source: Winston & Strawn LLP, "Benefit and Compensation Provisions in the Tax Cuts and Jobs Act," December 29, 2017).

Our latest insights

Hear from the investment team.

Don't miss out

Get the Capital Ideas newsletter in your inbox each week


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants' plan provider or employer.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.