The Tax Cuts and Jobs Act (TCJA) cut the federal tax rate on the profits of C corporations from 35 to 21 percent. The law also granted businesses structured as pass-through entities, such as partnerships, S corporations, and sole proprietorships, a 20 percent deduction on profits.
Companies have used their newfound savings to buy back stock at record levels, give one-time bonuses, and offer pay increases to employees. Some are also using their “padded coffers” to boost contributions to their 401(k) plans.
Plante Moran Financial Advisors Partner Susan Shoemaker notes she’s seen some 401(k) plan clients increase their matches or even funnel money into other benefits, such as greater contributions to health savings accounts and helping employees pay down student loan debt. Susan views the amped-up employer benevolence as an interplay between the newfound tax savings and a competitive labor market.