DOES A SUCCESSFUL 401(k) PLAN INFLUENCE A COMPANY'S PROFITABILITY?

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.

 

 

    

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

 

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

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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.

  

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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.

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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.

   

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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 Resources

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In The Media 

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