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Employer-provided benefit cost varies sharply by industry, Willis Towers Watson analysis finds

Industry disparities more pronounced for retirement than health care benefits


September 21, 2017

The cost of employer-provided health care and retirement benefits, measured as a percentage of pay, varies greatly by industry.

ARLINGTON, VA, September 21, 2017 — Overall, health care benefit costs averaged nearly 70% more than the cost of retirement benefits in 2015. 

The analysis, “Shifts in benefit allocations among U.S. employers,” found total benefit cost varies by industry. Health care costs are substantial across all sectors, ranging from 10.4% of pay in the retail sector to 12.7% of pay in the oil, gas and electric (OG&E) sector. The disparities among industries are much more pronounced for retirement benefits, which include defined benefit (DB), defined contribution (DC) and post-retirement medical programs (PRM). The analysis defines total retirement benefits as the combined employer-provided value of DB, DC and PRM programs. 

Total retirement benefits, for example, averaged 12% of pay in the OG&E sector compared with roughly 5.5% of pay in the health care, high-tech, general services and retail industries. The analysis notes utility, energy and natural resource companies, which comprise the OG&E sector, have some of the highest pension sponsorship rates. Utility companies are typically heavily unionized and generally prefer to maintain a consistent retirement structure for both union and non-union workers. Moreover, many jobs at OG&E companies are physically demanding, and DB plans can help provide flexibility for employees regarding when they retire.

“Industry is playing a significant role in how employers have been re-allocating their dollars for employee benefits,” said Debby Moorman, senior consultant, Willis Towers Watson. “Employers aren’t spending as much on retirement benefits as in previous years. In fact, employers are now spending a much higher percentage of pay on health care benefits compared with 15 years ago. By recognizing the talent needs for their respective industries, employers can better position a total benefit package that helps attract and retain workers with the right skills.”

Overall employer-provided benefit cost as a percentage of pay is also higher than average in the finance and manufacturing sectors. The finance sector includes insurance companies, which have high DB sponsorship rates, although banks and other finance companies have been less likely to offer DB plans to new hires since the 2008 financial crisis. While many manufacturing companies shifted from DB to DC plans over the last decade and reduced their overall spend on retirement benefits, most of them enhanced their DC contributions after closing or freezing the DB plan and thus provide a relatively generous, though lower, retirement benefit to newly hired workers today.

Across all industries, employer-provided health care costs for active employees averaged 11.5% of pay, about 70% more than the cost of retirement benefits (6.8% of pay).

Industry Active health care cost (% of pay) Retirement cost (% of pay) Total employer benefit value (% of pay)
Finance 11.6% 7.8% 19.4%
General services 11.0% 5.6% 16.6%
Health care 12.6% 5.7% 18.3%
Hi-tech 12.2% 5.6% 17.8%
Manufacturing 11.3% 8.3% 19.6%
Oil, gas, electric 12.7% 12.0% 24.7%
Retail 10.4% 5.4% 15.8%
All industries 11.5% 6.8% 18.3%

Several factors, such as demographics and other reward programs, play a significant role in an organization’s overall benefit strategy. While we expect employers to continue spending more on health care benefits, they should not lose sight of the fact that employees also value retirement benefits,” said Marina Edwards, senior consultant at Willis Towers Watson. In fact, in the previously released Global Benefits Attitudes Survey, Willis Towers Watson confirmed that almost eight in 10 workers rely on their employer retirement plan(s) as the primary vehicle they use to save for retirement.

About the analysis

The Willis Towers Watson analysis, “Shifts in benefit allocations among U.S. employers,” examined trends in employer costs for benefit plans since 2001 by examining a proprietary database of retirement and health care programs (for newly hired salaried employees) from over 500 medium and large U.S. employers.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has more than 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

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