Americans are more worried about retirement, and they're getting less help saving for it.
Employers cut their contributions to workers' retirements by a quarter from 2001 to 2015, according to a new report by the consulting firm Willis Towers Watson. The biggest driver: the decline of traditional defined-benefit pensions, which have been replaced by stingier, 401(k)-style, defined-contribution plans.
Retirement benefits—including employer contributions to pensions, 401(k)s and retiree health-care benefits—fell from 9.1% of worker pay in 2001 to 6.8% in 2015. Spending on traditional pensions plunged 76%, to less than 1% of worker pay. Medical benefits for retired workers became increasingly scant, falling from 1.2% of worker pay to just 0.2%.
The good news is that many companies, while shutting down or freezing pension plans, have sweetened their 401(k) matching contributions. Some large employers, eager to recruit top job candidates in such hot areas as technology, have boosted benefits, as the Wall Street Journal reported on Monday. An executive at Microsoft Corp. in charge of benefits told the Journal that the company's newly generous employer match had proved so popular that “it's blowing my budgets.”
But higher 401(k) matches aren't making up for the loss of other retirement benefits overall, and even the most generous 401(k) plans usually lack a traditional pension's biggest selling point: a guaranteed income for life. With a 401(k), it's up to individual workers to figure out how much they should be saving—and how to make the money last, once they've retired.
While retirement plans got less generous, spending on current workers' health insurance soared, Willis Towers Watson said. To keep up with the rising cost of health care in the U.S., employers doubled their spending on health care as a percentage of employees' pay, from 5.7% in 2001 to 11.5% in 2015.
In 2001, retirement made up the majority of the cost of providing benefits to employees, Willis Towers Watson estimated. But its share has fallen steadily. By 2015, health care for current employees was 63% of all benefit spending.
Workers aren't necessarily getting much for this extra health spending. In fact, other studies have shown that workers' contribution to their own health care, in the form of deductibles and co-pays, is also up.
Unfortunately, the rising cost of health care is hitting Americans twice. While they're working, health costs are bleeding away their ability—and their employers' ability—to pitch in for retirement. After retirement, unless current trends change, they face the daunting prospect of higher and higher medical bills.
The result is pessimism about retirement. Labor Department statistics show more and more Americans working past 65 and even 70. In a Willis Towers Watson survey of more than 4,700 full-time workers, 76% agreed that “my generation is likely to be much worse off in retirement than my parents' generation was.” More than a quarter of workers 55 or older said they “feel stuck” at work and would retire if they could.
Bloomberg News
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