Rate of Increase Projected to Rise in 2013, With Total Employee Cost Inching Toward $5,000. In 2012, U.S. companies and their employees saw the lowest health care premium rate increases in six years, according to an analysis by Aon Hewitt, the global human resources solutions business of Aon plc. The average health care premium rate increase for large employers in 2012 was 4.9 percent, down from 8.5 percent in 2011 and 6.2 percent in 2010. In 2013, however, average health care premium increases are projected to jump up to 6.3 percent.
The brief’s key findings are:
– The “backloaded” benefit structure of public sector defined benefit plans favors long-tenure workers over short-tenure workers.
– However, when a defined benefit plan is combined with either Social Security or a defined contribution plan, the degree of backloading is reduced.
– Not surprisingly, then, the analysis shows that public workers with either Social Security or a defined contribution plan are less likely to stay until retirement age.
– Giving workers more flexibility to switch jobs leads to better employment matches.
…For both current and future retirees, an important source of additional income in retirement is an employment-based retirement plan. Therefore, understanding the percentage of workers currently participating in an employment-based retirement plan provides critical insight into retirees’ likely future financial status.
In 2011, the percentage of workers participating in an employment-based retirement plan was essentially unchanged from a year earlier. Specifically, the percentage of all workers participating in an employment-based retirement plan moved from 39.6 percent in 2009 to 39.8 percent in 2010 to 39.7 in 2011, while the percentage of full-time, full-year wage and salary workers ages 21-64 (those most likely to be offered a retirement plan at work) saw a slight decline, from 54.5 percent in 2010 to 53.7 percent in 2011. While the overall level of participation was slightly downward, various categories of workers experienced increases in 2011….
From the summary:
Our nation is on the brink of a retirement crisis that could have severe consequences for both future retirees and society as a whole. The steady erosion in the voluntary employer-sponsored retirement system has made it more difficult for workers to save for retirement. This crisis will not only impact retirees, but the next generation of workers, who will be left with the tab when federal, state, and local governments are forced to expand to help millions of additional elderly Americans who will be living in poverty…
…In some of the most populous states, the share of uncovered workers has risen more dramatically than the national average. This alarming trend is a call to action for state and local policymakers who want to prevent old age hardship by ensuring all workers can invest adequately, efficiently, and safely for their own retirement….
…All workers need a supplemental retirement plan that invests their savings efficiently with low costs, earns a secure and sufficient rate of return, and preserves savings for retirement. Therefore, the policy challenge is to expand access to individual account-based retirement plans and to address the critical failures in the existing system by making a new retirement savings vehicle available that meets three key criteria for retirement income security:
– Helps workers make adequate retirement account contributions and prevents early withdrawals.
– Provides low-cost, quality investment vehicles that are professionally managed and helps shield individual workers from investment and market risks.
– Provides a lifetime guaranteed stream of income at retirement.
Creating a nationwide, individual retirement plan that incorporates the goals of adequate contributions, safe and appropriate investments, and lifetime income, would efficiently and practically solve the upcoming retirement crisis. But ifthe nation’s policymakers won’t act, each state can tailor the State Guaranteed Retirement Account plan–which meets all of the above criteria for an efficient and adequate retirement savings plan–to meet their unique needs and to secure retirement income for each state’s workforce….
…Given the current state of retirement income security in the United States, we propose states offer all workers a voluntary, low-fee, low-risk, retirement plan to help boost savings for retirement….State Guaranteed Retirement Accounts (State GRAs) are individual “cash balance” accounts where benefits at retirement are based solely on contributions and returns. A cash balance plan is an already-existing type of defined benefit pension plan that incorporates some features of a defined contribution plan….
Source: Segal, 2012
From the abstract:
The following are among the key findings of The Segal Company’s 2011 Study of State Employee Health Benefits:
• Almost all states offer either preferred provider organizations (PPOs) or point-of-service (POS) plans. Moreover, that is the predominant type of medical coverage offered in each region.
• The vast majority of states offer four or fewer family coverage tiers.
• For all medical plan types, the employee cost sharing percentage is greater for family coverage than for employee-only coverage.
• The most common deductible amount was $500 (median $350), with nearly 40 percent of PPOs/POS plans having annual per-person deductibles of at least $500.
• The most prevalent copayment range for primary care visits was $20-$24 for PPOs/POS plans. Just under half of those plans require copayments of at least $30 for specialist office visits.
• Just over half of medical plans require a copayment of less than $10 for retail generic drugs. The most prevalent copayment for retail generic drugs was $5 (median $8.50). More than half of plans require a copayment of $20 or more for retail preferred brand-name drugs and a copayment of $40 or more for retail non-preferred brand-name drugs.
The report of results from the 2011 Study of State Employee Health Benefits, which covers all states and the District of Columbia and reflects benefits offered to active, full-time employees of these jurisdictions in 2011, provides details about these and other findings. Examining what other states are offering can be helpful in making tough decisions about potential changes in coverage, including types of coverage offered, the number of plans of each type offered, the number of coverage tiers offered and how costs are shared with employees.
Source: ABA Journal of Labor and Employment Law, Volume 27, Number 2, Winter 2012
From the editor’s page:
…The 2011 legislatures acted in the midst of some of the most difﬁcult economic conditions for state and local governments in many years. Politicians enlisted the support of taxpaying opponents of government spending, arguing that public workers are overpaid, underworked, and far too secure in their employment. Critics, however, argued that Republican ofﬁcials took advantage of economic conditions to enact restrictions for political reasons, including a desire to weaken unions that have been strong supporters of the Democratic Party. The articles in this issue, written by speakers at a symposium entitled Public Employment in Times of Crisis, sponsored by the Labor Law Group, the University of Richmond School of Law and Center for Leadership in Education, and the American Constitution Society, shed light on the intensive debate about the legal and policy issues relating to public employment….
• The Legislative Upheaval in Public-Sector Labor Law: A Search for Common Elements
By Martin H. Malin
• The Constitutional Dimension of Unilateral Change in Public-Sector Collective Bargaining
By Stephen F. Befort
• Public Pension Benefits Under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Beneﬁts of Public Servants?
By Eric M. Madiar
• Discipline and Discharge of Public-Sector Employees: An Empirical Study of Arbitration Awards
By Laura J. Cooper
• The Impact of Employee Performance in Adverse Actions in the Federal Sector
By Susan Tsui Grundmann
• The Effect of Pension Accounting Rules on Public-Private Pay Comparisons
By Andrew G. Biggs and Jason Richwine
• State and Local Public Employees: Are They Overcompensated?
By Jeffrey H. Keefe
• Evolution of Public-Sector Retirement Plans: Crisis, Challenges, and Change
By Robert Clark
• The Sheathed Sword: Public-Sector Union Efﬁcacy in Non-Bargaining States
By Ann C. Hodges and William Warwick
• The Wisconsin Public-Sector Labor Dispute of 2011
By Paul M. Secunda
• Untested Assumptions in NLRB Proceedings
By Phoebe Taurick
UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 1a: Public Employee Compensation – Public Sector Pensions in Crisis
– UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 1b: Public Employee Compensation : Excessive or Inadequate?
– UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 2: Collective Bargaining, Existing Frameworks and Recent Changes
– UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 3: The Constitutional Framework for Public Employment
– UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 4: Education Reform: The Role of Teachers
– UR School of Law – Public Sector Employment in Times of Crisis Conference – Panel 5: Public Employee Job Security and Termination
A growing number of workers are realizing they will not get retiree health care from their employer after they stop working, according to a new report by EBRI. While earlier research found little impact from reductions in coverage on current retirees, EBRI finds that initial changes employers made to retiree health benefits affected future retirees as opposed to then-current retirees. Over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies.
From the abstract:
The Oregon Public Employees Retirement System (PERS) is a hybrid pension plan that provides employees the security of a defined benefit (DB) pension plus the option to receive instead retirement benefits based on a defined contribution-style (DC) retirement account. We use PERS administrative data for 1990 to 2003 to study the effect of this hybrid design on employers’ costs and employees’ retirement-timing decisions. We have four findings. First, the option built into PERS is costly for employers to provide. Ex post, average retirement benefits are 49% higher in the hybrid plan than they would have been in a traditional DB plan. For the typical retiree, simulations show that our ex post estimate lies between the 50th and 75th percentiles of the ex ante distribution. Second, the hybrid plan distorts employees’ retirement timing decisions relative to a traditional DB plan. Looking across benefit formulas, we find that as an employee’s DC benefit increases above her DB benefit, so does the probability that she retires before the normal retirement age. Third, we find that retirement timing decisions respond to two sources of exogenous variation in the level of the DC benefit. Finally, we find evidence of peer effects in that employees respond more strongly to their own retirement incentives when more of their coworkers face similar incentives. The retirement waves that result from employees seeking to avoid declines in pension benefits are likely to impose significant administrative costs on employers.
Source: Aon Hewitt, 2012
From the abstract:
Nearly all employers (94%) are committed to offering and financially supporting health benefit coverage for their workforce in the foreseeable future.
The commitment is there but what about the solution? The average cost of health coverage per employee crossed the $10,000 mark for the first time in 2012*. The cost of health care is projected to increase at an average rate of 7% to 10% in 2012. Meanwhile, salaries are expected to increase about 3% on average. This tenuous dynamic, coupled with the fact that many employees are becoming more educated and better stewards of their own health care choices, makes now the ideal time to explore other health care coverage options, including Exchanges.
To better understand employer views on Health Care Exchanges, Aon Hewitt surveyed 562 organizations nationwide.
From the summary:
A new research brief examines the workforce impacts of existing defined benefit (DB) pension plans to assess the likely effects of a switch to defined contribution (DC) individual accounts or cash balance plans.
Public employers would attract a different labor force if they switched retirement benefits away from pensions. Public employees would be less committed to employers and thus less likely to invest in nontransferable skills that are critical to delivery of taxpayer services.
Employee turnover would increase under individual DC accounts and cash balance plans. These types of retirement benefits no longer defer compensation into the future and thus offer fewer economic incentives for employees to stay with public employers.
Moving from a pension structure would result in higher cost for public employers and employees because of higher investment and administrative costs for alternative retirement plans.
Public employers and employees overwhelmingly choose to stay with pensions rather than moving to alternative benefits when faced with a choice, illustrating the high value of pensions to public sector employers and employees.
– Press Release