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Why Employee Benefits Are Essential

Why should employers provide benefits? Why not take the money spent on benefits and use it to increase wages? 

Forty years ago, most profit-sharing programs gave awards based on an individual worker’s productivity or based on organizational profits. However, today’s typical profit-sharing plan allows for 401(k) employee contributions and provides an employer match that is not calculated based on profits or productivity.

Before the Tax Reform Act of 1986, worker retention was favorably impacted through lengthy vesting schedules — most pension plans limited benefits to workers who completed 10 years of service.  Today’s broad-based benefits are usually provided without regard to a worker’s skill set, talent or performance.  And, despite consulting firm assertions, it is only a coincidence when today’s benefit plans correlate with worker productivity or an organization’s financial performance. In fact, broad-based benefit plans have not been proven effective at differentiating talent, because they must meet eligibility and non-discrimination requirements.

So why provide benefits?

Broad-based benefits, including 401ks, significantly improve the total rewards value each worker receives due to the combination of tax preferences, group dynamics and economies of scale – a value that is not available through any other means.  

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