It has long been argued that 401(k) plans provide a variety of benefits to the employers that sponsor them, such as helping to attract and retain employees. The financial benefits for employers are often difficult to quantify, however. The authors investigate the potential for a correlation between 401(k) plans and corporate financial performance by using a well-known external data and ratings system (BrightScope Rating) as a measure of success. They find significant correlations between measures of 401(k) plan design and corporate profitability across all sizes of companies within and across industry sectors. Correlation is not the same as causality, but they show that better plans and more-profitable companies go together. They cannot say that better plans cause more profits, but their findings point to a symbiotic relationship between a company’s 401(k) plan and its financial performance.
TOPICS: Retirement, performance measurement, information providers/credit ratings