November 30, 2021

Paid Parental Leave vs. a 401(k) Match: A Review of Value to Companies and Financial Wellness

Almost everyone has children, so having a strategy to address the unique challenges of this consequential, stressful, yet joyfu
Written by
Dirk Doebler
Published on
November 30, 2021

Almost everyone has children, so having a strategy to address the unique challenges of this consequential, stressful, yet joyful period of life just makes sense. In fact, it makes much more sense than many other things companies already do or invest in given just how common and impactful it is.

Family is our top priority in life, directly affecting our decisions around work and career. For many it’s why they work. But where exactly should supporting working parents and parental leave be in the hierarchy of policies companies can offer?

I’m going to say something that might be controversial and get a few scoffs, but as a former CFO in charge of HR and someone that considers personal finance a hobby, hear me out.

Paid parental leave would be a more worthwhile investment to many, if not most, companies than a 401(k) match.

Stay with me here.

The data on the prevalence of children and impact of paid parental leave on working parents’ careers, retention, loyalty, hiring, etc. (See our latest White Paper) bears out this claim. Beyond the data, the human cost, the human toll bears it out.

Without a comprehensive approach to employees having or raising kids, companies effectively create a career chasm for most female employees. One that directly results in the vast majority eventually quitting their jobs and falling years behind in their career advancement.

It’s not a small group of people this impacts. Anyone 40 years old or younger is in their childbearing years and likely incorporating parenthood into their career decision-making. Under 40-year-olds are over half the workforce and the future of every company, so not some small or insignificant portion of the workforce. Half of it. Anyone under 35 is almost certainly incorporating parenthood into their career decision-making.

Over half of women having a child in a normal year (not even a pandemic year) will make a significant career decision and quit based on parenthood, but this is entirely avoidable. Without 12 or more weeks of paid parental leave:

10-20% of women may quit 6-12 months before having their kid


33-45% quit after having a child

Companies that don’t have a codified, comprehensive strategy to address parenthood and its impact on work and careers is 100% losing talent, particularly female, to one of the most common and addressable life events - and not only after she has a child.

401(k) → Paid Parental Leave → 401(k) Match

Most companies probably should offer a 401(k) before offering paid parental leave. 401(k)’s are universally applicable and most people can get continuous benefit from them. They also aren’t particularly expensive. It’s choosing to offer a match or increase an existing match that may not be the next best step before paid parental leave for many companies. Specifically, companies with a median employee age of 40 years old or younger or is trying to attract and retain these ages.

It’s easy to fall into the trap that a 401(k) match is also universal and everyone needs it so you should do that first. But that fundamentally ignores the scale of the consequences and opportunity cost of other, frankly, less expensive policies and inherently assumes it will drive retention, tenure, productivity, or any other key goal of HR. Or that it’s most important for financial wellness. Au contraire.

While only 3-6% of employees may have a kid each year (if your rate is lower, either you have an older population or employees are quitting to have kids elsewhere), for most firms 30-50% of employees may be considering or planning to have a child in the next several years. That makes family planning a very widespread factor in career decision-making across a company! Employees starting or building their family will make decisions of whether to quit or stay, take an offer or not, return full-time or part-time in direct response to a company’s support mechanisms when they have kids and afterward.

Plus, not only is paid parental leave of 12 weeks or more less expensive than a 401(k) match, it actually reduces labor costs by cutting turnover and measurably increasing tenure (again, see our White Paper). Under our program, we know what it costs and takes to retain employees through one of the most common and consequential life events. A 401(k) match could cost more than 1% of payroll. A comprehensive, insured paid parental leave policy that also provides unlimited support and coaching to ensure employees return to work costs considerably less while directly improving workforce outcomes.

Still skeptical? When half of women quit their jobs the year they have a kid, parenthood can directly drive 1% annual turnover for some firms. An effective paid parental leave policy of at least 10 weeks, preferably more, integrated with a return-to-work & support program can reduce that turnover to a fraction of that, saving tens of thousands of dollars annually per prospective parent while increasing output.

The ROI calculation on a match vs. paid parental leave is extremely simple. Genuine paid parental leave of 10 weeks or more can reduce labor costs 0.5-3% depending on the age of the population due to its benefits to tenure, hiring, medical spend, retention of women having kids, and productivity gains. Can a 401(k) match… match that?


A hot topic today is financial wellness.

If we’re talking about the financial wellness of employees, a 401(k) match (and honestly, any other financial wellness program you can offer) pales in comparison to the impact on long-term earnings moms face and the lost income of not working for 6 months. 2/3rds of women with at least 2 kids will have left the workforce and stopped working altogether for at least 6 months, and it's nearly all avoidable turnover.

6 months of no income is a DECADE of full 401(k) matches.

Regardless of when they return to work after having a child, moms will lag their male colleagues and childless female colleagues in earning power permanently because of the challenges of having a child while working. Specifically, their incomes will be 25% lower on average! Forget a 6% match, they just lost 25% of their income! - PERMANENTLY! - because neither they nor their partners received the time off they needed or necessary parental support to handle working with a new child.

And it is not just a mom’s issue. One study found that for each month of parental leave dads took, their spouses’ earnings rose 7%. 3 months of paid paternity leave would result in 21% higher earnings for mom! All moms making 21% more/year permanently is way better than a single-digit match on 80% of the pay. (Source)

Sure, only a few % of people have a kid in a company each year, but the vast majority of Americans will have at least 1 child and such large negative, avoidable consequences against most women’s careers directly impacts household earnings, impacting most employees. These negative impacts also stack since earning power and output is lower across all moms at a company.

Imagine getting 20% more value out of each mom at your company; all you had to do was offer paid parental leave and return-to-work support.

The argument that a 401(k) match is critical to financial wellness and to be prioritized over paid parental leave falls apart when we compare it to the financial impact of having a child and being forced to quit working or take a step back from work, which is more common than not for women.

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