Economists frequently assume that employees “pay for” employer-provided fringe benefits, such as contributions to retirement plans, in the form of reduced wages.
Wages and fringe benefits are generally perfect substitutes, so that an additional dollar of wages should substitute for an additional dollar of fringe benefits and vice versa.
But that's not necessarily true, says tax analyst Eric Toder in a recent brief.
While higher-income workers clearly benefit from such programs -- they face higher tax rates than low earners during their working years, so the tax deferral is more valuable, and are more likely to drop into a lower tax bracket at retirement than low earners who are already there -- that doesn't mean lower-income workers shouldn't sneer at such plans.