The new plan to create a stock portfolio for every child in America caught the attention of Microsoft, Uber and Dell –

The Fearless Girl statue opposite the Charging Bull sculpture in the Financial District of New York, USA, on Wednesday, March 8, 2017.

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Government-sponsored investment accounts for children could be on the horizon, and if tech investor Brad Gerstner has his way, American companies will be stepping up. The effort, still in its early stages, could prove extremely beneficial for companies and their employees.

Gerstner worked with lawmakers to promote a legislative program called Invest America that would create a $1,000 investment account for every child born in the U.S., but it is too early in the process to publicly name supporters . However, he aims to have the law passed before the next presidential election. At the same time, he is working with Corporate America to encourage companies to offer matching funds to help employees grow their savings.

“The vision is simple — that companies would deposit a $1,000 Invest America share into the Invest America account of their employees’ children,” said Gerstner, founder and CEO of Altimeter Capital, in an email. “We’ve spoken to companies from Zillow to Dell to Uber and, subject to specifics, the response has been overwhelmingly positive,” he said.

In the past, companies generally haven’t done much to ensure the financial well-being of their employees’ children. But that could be changing as companies increase their efforts to attract and retain talent with benefits that support employees in many areas of their lives.

About 96% of companies that offered a 401(k) plan in 2022 made planned matching contributions to employees’ retirement plans, according to a survey by the Plan Sponsor Council of America, a trade group. “We expect corporate matching with Invest America accounts to be very widespread,” Gerstner said.

Rich Barton, Zillow’s co-founder and chief executive, said it was a no-brainer for his company to fully support and deliver on the type of program Gerstner is proposing. “A 401(k)-style investment account from birth seems like a great way to bridge the growing gap between financial literacy and wealth,” he said in an email. “It’s a small investment to help parents have greater peace of mind.”

Representatives for Microsoft CEO Satya Nadella, Michael Dell and Uber CEO Dara Khosrowshahi, as well as other companies Gerstner described as receptive to his pitch in a recent CNBC interview, did not respond to email requests for comment.

Passing federal law in Washington, DC is challenging, including finding larger legislative tools with impetus for individual ideas. However, here is an introduction to what a suitable program might look like and how companies could benefit if Invest America proves it has legs on Capitol Hill.

Why companies would fund another employer match

Particularly among fast-growing companies, there is a growing need to offer competitive advantages that touch on areas that have not traditionally been considered, some of which go beyond the age range of what is typically covered, said Trish Costello, managing director of Portfolio. a venture investment platform for women.

She cites as an example the recent move by companies to offer menopause support. These and other new benefits are being introduced – and expected by employees – and this extends to benefits that can have a positive impact on their children, she said. “Once you find a few companies that offer these benefits, you can expand very quickly,” Costello added.

Parents are worried not only about their own financial health, but also about the next generation’s ability to afford things like school, housing and their own retirement, said Lynne Vincent, an associate professor of management at Syracuse University’s Whitman School of Management . Setting up an investment account for employees’ children could be another option for companies to show they care and support employees and their families, she said.

“When companies are part of this solution, we feel much better about our workplace and the future,” Costello said.

How companies could benefit from a tax perspective

To be sure, there can be tangible – and intangible – benefits for companies that have participated in a matching program. For example, the government would need to create tax incentives for businesses that would likely work similarly to deductions for 401(k) contributions, said Jeffrey Sharp, executive vice president at HUB International, a global insurance broker that offers employee benefits. and other products and services.

According to CNBC Make It’s compound interest calculator, someone who had $1,000 in their account at birth could expect to have a balance of about $107,000 by age 67, assuming the portfolio grows at an annual rate of 7%. . With a company match, a $2,000 investment could grow to about $215,000 under the same conditions. The outcome could be even more beneficial if parents contributed additional funds.

Aside from the tax benefits, a matching program could lead to a brand boost, especially for early adopters, Sharp said. And there are other potential benefits. Employees may be less likely to leave a company that makes them feel like they and their family are at heart.

“They will feel this sense of loyalty, commitment and commitment to your organization because you have shown them that loyalty,” Vincent said.

Additionally, happier and more financially stable employees are also known to be better employees, said Joseph Doerrer, vice president of wealth planning at Mezzasalma Advisors, a firm that provides tax, accounting and wealth management services.

Criticism of the Invest America plan

However, Gerstner’s plan is not without criticism. Some point out that there are already options for parents to invest on behalf of their children, including custodial brokerage accounts and 529 accounts, although these are not taken off payroll like a 401(k) account . And while an investment account match might be a good selling point for attracting talent, it’s not necessarily a slam-dunk for companies, said Robert Kelley, distinguished service professor of management at Carnegie Mellon’s Tepper School of Business.

Companies would have to consider whether it makes sense to pay for these types of benefits that not all employees would be able to take advantage of. For example, they might decide that it would be better to increase their 401(k) so that more employees could benefit.

“It’s one thing to offer something like pet insurance that not all employees can use, but it’s another thing to pay for it,” Kelley said. Of course, companies already pay for benefits like free backup day care, scholarship programs and student loan repayment that cannot be used by employees, but it would certainly be a consideration should the program come to fruition, Kelley said.

Costello said she thinks getting the government to buy into the idea could be more of a challenge than getting companies to agree to comply. And of course many details still need to be clarified, e.g. B. Will these accounts be transferable? How are parents discouraged or prevented from accessing their children’s funds? And could there be rules as to what and when the funds can be used?

It’s possible that some of the framework is similar to what Democratic Congresswoman Ayanna Pressley of Massachusetts and fellow Democrat Senator Cory Booker of New Jersey proposed when reintroducing the American Opportunity Accounts Act in February, which would create a federally funded savings account for every American child.

It could take years for Gerstner’s planned investment account system to be implemented, Sharpe said, but he added: “That doesn’t mean we shouldn’t work on it now.” You have to start somewhere.”


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