Benefits October 23, 2012

Retirement Income from Employer Plans Increasing

October 23, 2012 (PLANSPONSOR.com) – Retirees across all income groups are collecting more in retirement income today from employer-sponsored retirement plans than in the mid-1970s, an Investment Company Institute (ICI) study found.
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“A Look at Private-Sector Retirement Income After ERISA, 2011” found that in 2011, 33% of retirees received income—either directly or through a spouse—from private-sector retirement plans, compared with 21% in 1975. The median income received by those with private-sector pension income was $6,300 in 2011 compared with about $4,700 in 1975 (in 2011 dollars). The research examines private-sector retirement income trends since 1974, just after the Employee Retirement Income Security Act (ERISA) was enacted.

The study also revealed that an increase in DC plan coverage over time has kept U.S. worker access to private-sector retirement plans steady since the 1970s. While coverage has been consistent, an increasing number of private-sector workers have worked for employers that sponsor defined contribution (DC) pension plans, while the number having worked for employers that sponsor defined benefits (DB) plans decreased. In 1975, nearly 90% of active participants in private-sector retirement plans had primary coverage through DB plans, dropping steadily over time to below 50% by the 1990s. By 1998, 44% of active participants in private-sector retirement plans had coverage through DB plans.

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Coverage by a pension plan does not always result in retirement income, the study found. The historical prevalence of retirement income from private-sector DB plans may be overstated by only looking at pension coverage, rather than receipt of pension income. Many retirees may have worked for companies that offered DB plans; however, because private-sector workers change jobs often, the combination of vesting rules and back-loaded benefit accrual resulted in many retirees getting little or no retirement income from private-sector retirement plans.

The ICI report also revealed Social Security benefits continue to serve as the foundation for retirement security in the U.S. and represent the largest component of retiree income and the predominant income source for lower-income retirees. In 2011, Social Security benefits were 57% of total retiree income and more than 85% of income for retirees in the lowest 40% of the income distribution.

“As policymakers consider retirement savings policies, it is important that they understand that private-sector pension income has tended to increase over time rather than decrease. The share of retirees receiving private-sector pension income increased by more than 50% between 1975 and 1991, and has remained fairly stable since,” said Peter Brady, ICI senior economist and coauthor of the report. Further, among those receiving income from private-sector pensions, the median amount of inflation-adjusted income—which had remained fairly flat between 1975 and 1991—has increased nearly 40% since 1991.”

The study was coauthored by Brady and ICI associate economist Michael Bogdan. More information can be found here.

Benefits October 23, 2012

Employers Not Planning to Drop Health Care Benefits

October 23, 2012 (PLANSPONSOR.com) – Employers say it will be business as usual in their approaches to health benefits, as they plan for new developments in the coming year due to the Affordable Care Act (ACA).
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According to a survey by the Midwest Business Group on Health (MBGH) in collaboration with The Benfield Group, for the next few years, there is little indication that employers plan to drop health care coverage and provide employees a set amount to buy health care coverage elsewhere.   

In preparation for the 2018 40% excise tax on high cost “Cadillac” plans, 31% of employers indicated they plan to reduce their benefits between 2014 and 2016, with 41% responding they will do so in 2017 or 2018.   

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Only 9% of employers indicated they plan to participate in state health insurance exchanges when they begin. While there is interest in private health insurance exchanges, at this time only 4% believe they will use these for active employee coverage in 2014 to 2016, while 11% indicated they will move toward private exchanges for post-65 retirees.

Fifty-seven percent of respondents currently offer consumer directed health plans (CDHP), such as health savings accounts and health reimbursement accounts, as a plan option and indicated that this would increase to 62% in 2013 and 71% through 2018. All large-size employers indicated they will offer CDHPs by 2018. More than one-quarter (29%) of all employers will make their CDHP offering their only plan available to employees by 2018.   

More than half (52%) of employers plan to make vision and/or dental coverage voluntary benefits in 2013, increasing to 55% by 2017 to 2018.  

"Employers still believe that health benefits are vital to attract talented employees and maintain a productive work force," says Scott Thompson, president of the health care practice at The Benfield Group. "This research found that most employers, especially those with more than 200 employees, will not drop employee benefit coverage in the foreseeable future. Instead, they'll control costs in other ways like implementing CDHPs, basing premium contributions on the number of dependents covered (unit pricing) and reducing benefits to avoid the Cadillac tax. Employers will continue to be active purchasers of health care."  

The online survey was conducted in August 2012 with 111 respondents from across the U.S. in a variety of industries representing self-insured (77%) and fully-insured (23%) employers.

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