Roughly half of public-sector employees surveyed (46%) are worried that the health care benefits they were promised in retirement will evaporate when they need them most, according to the 2020 Keeping Benefit Promises Study by Willis Towers Watson.
The public-sector employees expressed the importance of retiree health care coverage, with 58% saying it was extremely or highly influential in their decision to work in the public sector. In addition, a National Institute on Retirement Security (NIRS) Issue Brief says 78% of Millennials working in state and local government said their health care benefits is one reason they chose a position in the public sector. And if those benefits were cut, 77% say they would be more likely to leave their jobs.
In the Willis Towers Watson study, almost two-thirds (64%) of public-sector employees said their financial security in retirement depends on the promise of employer-sponsored health care coverage. Forty-one percent said they would give notice if their benefits were reduced, and more than half (54%) expect to be supported in retirement because they served their community.
However, the company notes that retiree health care is becoming an unsustainable financial burden on public-sector organizations, with state unfunded retiree health care liabilities nationwide reaching $700 billion. Many organizations are reacting by cutting retiree health care altogether or adopting short-term solutions, such as reducing spousal benefits or requiring more years of service to qualify.
“When balancing their budgets, public-sector organizations are stuck between a rock and a hard place,” says Jon Andrews, managing director, Benefits Delivery and Administration, Willis Towers Watson. “They do not want to increase taxpayer burden nor deprive employees of the benefits that initially attracted them to the job. The good news is a solution exists. Employers should consider an often-overlooked remedy: providing funding via a health reimbursement arrangement and allowing retirees to shop for health plans (with these funds) on the individual Medicare marketplace.”
Willis Towers Watson explains that the individual Medicare marketplace—or Medicare exchange—is a marketplace that provides affordable plan options for retirees through a defined contribution (DC) model while making retiree health care sustainable for plan sponsors.
According to the NIRS report, most Millennials in state and local government (80%) believe they could earn a higher salary working in the private sector. When it comes to retirement benefits, they said their retirement benefits are more competitive than salaries. Ninety percent see their public-sector retirement benefits as competitive.
Millennials working in state and local government are highly supportive of pensions. Nearly three-fourths of Millennials in state and local government (73%) indicated that pensions also are a significant reason they selected their job. Similarly, a high number of Millennials (84%) said a pension benefit is the reason they stay in a state and local government job. Most Millennials (85%) in state and local government said they plan to stay in their job until they retire or can no longer work.
Similar to health care benefits, most Millennials (71%) said cutting their pension benefits would make them more likely to leave their state or local government job.The NIRS report notes that a few states have considered switching public employees from defined benefit (DB) pensions to defined contribution (DC) plans. However, the report recalls that some states did so and had to reconsider the change when they found costs were not lower and/or teachers were falling far short in their retirement savings targets. More than three-fourths of Millennial state and local employees (77%) said they prefer pensions over 401(k) accounts.
« Prudential Adds Debt Management Services to Financial Wellness Offering