Employer Spending on Retirement Benefits Declining

Employers' investment in workers’ retirement benefits, measured by benefit values as a percentage of pay, has dropped consistently over the last decade, according to research by Watson Wyatt.

A Watson Wyatt analysis of 183 employers found that the total value of retirement benefits (defined benefit (DB), defined contribution (DC), and retiree health care) provided to employees decreased from 7.8% of pay in 2002 to 6.9% of pay in 2008, according to a press release. For the 79 companies that maintained DB plans throughout this period, the value of the overall benefits declined from 9.4% to 8.6% of pay, mostly due to a significant cut in post-retirement health benefits.

In the same time period, the 61 companies that provided only a DC plan saw a small increase in overall benefits value—from 5.3% to 5.6% of pay—due to enhanced employer contributions.

The remaining 43 companies in the sample transitioned from DB to DC-only coverage between 2002 and 2008. Although these companies increased their DC benefit values by an average of 2.7%, this gain covered only approximately half of the DB value loss that was incurred by closing or freezing plans. For these companies, overall investment fell substantially, from 8.7% of pay in 2002 to 5.5% of pay in 2008.

“The tumult of the last decade, with its market bubbles and crashes, two recessions, rising health care expenses and compensation pressures, has caused employers to scramble to look for savings,” said Jim Shaddy, North America retirement practice director at Watson Wyatt. “As a result, a number of employers have pushed some of the risk and cost in their retirement plans onto employees’ shoulders.”

According to the announcement, an analysis of a larger data set of more than 600 companies found that some industries, such as manufacturing, transportation (including the airline sector) and communications, experienced declines greater than 30% in value of their retirement offering from 1998 to 2008. Other more profitable industries, such as chemicals, drugs and pharmaceuticals, had a smaller decrease in the same time frame.

The study report can be obtained from www.watsonwyatt.com/employercommitment. A free registration is required.