Private sector companies have steadily provided less retirement benefits to workers over the past decade. The value of retirement plans for employees, including traditional pensions, 401(k)s, retiree medical insurance, and post-retirement life insurance, dropped from 7.8 percent of pay in 2002 to 6.9 percent of pay in 2008, according to a Watson Wyatt analysis of 183 medium and large private sector employers over the 7-year period. About half of the decline is due to the elimination of retiree health plans at most companies. The shift from traditional pensions to 401(k)s also eroded the total value of retirement benefits.
For companies that eliminated a traditional pension and now provide only a 401(k), total retirement benefits dropped from 8.7 percent of pay in 2002 to 5.5 percent of pay in 2008. Many of these companies increased their 401(k) contributions when the pension plan was eliminated, by an average of 2.7 percentage points, but this gain covered only about half of the value employees lost when their pension plan was frozen or closed.
"The tumult of the last decade, with its market bubbles and crashes, two recessions, rising healthcare expenses, and compensation pressures, has caused employers to scramble to look for savings," says 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."
Employers that provided only a 401(k) or similar retirement plan for the past 7 years actually increased retirement benefits slightly from 5.3 percent of pay in 2002 to 5.6 percent of pay in 2008, due to higher employer contributions to 401(k)s. Companies that maintained traditional pension plans throughout this period reduced the value of overall retirement benefits from 9.4 percent to 8.6 percent of pay, largely due to a significant cut in retiree health benefits. The employers also lowered the value of retirement benefits by converting to hybrid pension plans, reducing benefit accrual rates, trimming early retirement subsidies, and eliminating supplemental benefits.
A related Watson Wyatt analysis of 600 companies found that the highly profitable pharmaceutical and energy industries tend to provide significantly more generous retirement benefits than the retail and construction industries. But almost all sectors somehow cut retirement payouts over the past decade. Only one industry, the growing healthcare sector, gave even a slight increase in retirement benefits to workers. Here’s a look which jobs provide the most retirement benefits and how their value has changed since 1998.
Retirement Benefits as a Percentage of Pay in 2008
(Percent change from 1998 to 2008 is in parenthesis.)
Source: Watson Wyatt