Lower Payroll Tax Could Boost 401(k) Savings

In December 2010, President Obama signed into law a tax bill that included a one-year reduction in workers’ Social Security taxes, from 6.2 percent in 2010 to 4.2 percent in 2011. 

Essentially, this increases the take-home pay for American workers, creating an excellent opportunity to promote greater 401(k) or 403(b) savings. 

Plan sponsors should consider encouraging employees to increase their plan contributions by the same amount of the tax savings, putting more money into their retirement fund without lowering their normal take-home pay. 

Educate employees about this tax benefit and the advantages to contributing more to their retirement fund, even if just for one year. One year of increased saving can make a significant difference, especially for employees decades away from retirement.