Companies that care for their employees perform better …no, really.
While it would seem pretty intuitive, a new study links the quality of a 401k offering to corporate profitability, regardless of a company’s industry or retirement plan size.
More specifically T. Rowe Price Retirement Plan Services found “significant correlations between four success metrics of a 401k plan and four measures of corporate profitability.”
It evaluated 485 plans with more than $50 million in assets and a BrightScope rating, which served as a proxy for 401k plan quality at 332 U.S. publicly traded companies.
It found that those with an above average rating are strongly associated with companies that have between 20 and 80 percent higher profitability measures than companies with 401k plans rated as Average.
Conversely, plans rated poor are strongly associated with companies that have profitability measures up to 80 percent lower than companies with 401k plans rated average.
“While correlation isn’t the same as causality, our findings provide strong evidence that there’s a connection between better-designed and higher-quality 401k plans and a company’s bottom line,” Joshua Dietch, head of T. Rowe Price’s retirement and financial education team, said in a statement. “We’ve long believed this was the case, but this is the first time we’ve been able to prove the correlation.
He added that while there may be higher costs associated with stronger plans—such as more generous matching or the immediate ability to participate in the plan—the potential profitability gains may outweigh the costs.
On a per employee basis, companies with plans rated “great” are more likely to have net income per employee between 40 and 80 percent higher than companies with plans rated average.
Revenue per employee is between 20 and 60 percent higher for companies with plans rated “great” than companies with 401k plans rated average. Companies with plans rated “below average” or “poor” have up to 80 percent lower revenue per employee.