Employers Have Shifted Allocation of Benefits Dollars

There seems to be a disconnect between employees’ primary concerns, needs and preferences and the reshuffling of employer dollars, Willis Towers Watson says.

By Rebecca Moore | July 18, 2017
Page 1 of 2 View Full Article

Over the last decade, escalating health care costs, historically low interest rates and an aging workforce have made employee benefits much more expensive, while historically low productivity growth has kept compensation budgets lean, according to a Willis Towers Watson analysis.

The analysis, Shifts in Benefit Allocations Among U.S. Employers, found the total cost of employer-provided benefits—health care, retirement and postretirement medical—rose from 14.8% of pay in 2001 to 18.3% of pay in 2015, a jump of 24%. During this period, health care costs for active employees more than doubled, rising from 5.7% to 11.5% of pay. Conversely, total retirement benefits, which include defined benefit (DB), defined contribution (DC) and postretirement medical plans (PRM), declined by 25% between 2001 and 2015, from 9.1% to 6.8% of pay.

Willis Towers Watson says the reason retirement costs declined is that over that period, many employers shifted away from DB plans as their primary retirement vehicle, typically replacing them with an enhancement to the existing DC plan. In fact, DC benefits increased by 1.6 percentage points between 2001 and 2015, which wasn’t enough to replace the 2.9 percentage-point loss in DB plan benefits. Eliminating PRM for new hires and reducing employer subsidies also played a role in reducing overall retirement cost, as PRM values declined by one percentage point over the analysis period.

These trends reflect a seismic shift in the allocation of benefit dollars, Willis Towers Watson says. In 2001, active health care costs comprised about two-fifths (42%) of benefits while retirement benefits made up the remaining three-fifths (58%). By 2015, the ratio had flipped, with active health care benefits accounting for slightly less than two-thirds of costs (64%) and the retirement share dropping to slightly more than one-third (37%).

NEXT: Benefit spend not in line with what employees want