Employers worried about the cost of employee benefits have lately been focused on traditional defined-benefit plans. With the stock market plummeting to astounding lows beginning late last year, the asset values of those plans have similarly decreased. That leaves many plans severely underfunded. In turn, that means that sponsors will have to write down earnings even more in this era of the writedown.
But employers looking back over long-term compensation trends might be a good deal more alarmed about the acceleration of health-benefit costs. To be sure, retirement-benefit costs remained the biggest piece of U.S. employers’ benefits-expenditure pie through 2007, according to figures assembled by the Employee Benefits Research Institute late last year.
But health-benefits costs have been hot on the heels of the leader. In 2007, while retirement-income benefits (at $693.9 billion) accounted for 47.7 percent of the total spending for benefits, health benefits (at $623.1 billion) had risen to 42.8 percent of total benefit spending, according to EBRI.(See the table below.) In 2000, by comparison, retirement benefits (at $458.8 billion) claimed 48.2 percent of total comp, while health benefits (at $399.6 billion) took up 41.2 percent.
Indeed, employer spending on the two areas has been going in different directions since at least 1980, when retirement benefits were at 58.5 percent of the total-comp pie and health care took a mere 26.7 percent slice.
Another trend is clear from the research firm’s efforts. The boom starting at the start of this century and stretching into 2007 provided a huge push to employee compensation. Citing recent U.S. Commerce Department data, EBRI reported that employer spending on total compensation reached almost $8 trillion at year-end 2007. That was almost 35 percent higher than it was in 2000. Under current economic conditions, such growth will be hard to maintain.