Employer-provided benefit costs vary widely by industry

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The cost of offering healthcare and retirement benefits varies widely by industry, with retirement benefits experiencing the greatest variation.

In new analysis, Willis Towers Watson finds that healthcare costs, as expected, are the largest cost across all industries, ranging from 10.4% of pay in the retail sector to 12.7% in the oil, gas and electric sector.

Total retirement benefits, which include defined benefit, defined contribution and post-retirement medical programs, range from 5.5% of pay in the healthcare, high tech, general services and retail industries to 12% of pay in the oil, gas and electric sector.

Marina Edwards, senior retirement consultant at Willis Towers Watson, says that the disparity across the industries for retirement benefits can be traced back to the closing down of company pension plans.

Funding still goes into those plans, but employers must also funnel dollars into their defined contribution plans, she says. All of that counts toward an employer’s total benefits package spending, which also includes healthcare premiums, some subsidized by the employer.

“Total employer spend can be quite high in some cases,” Edwards says.

As far as defined contribution plans go, employers in different industries must contend with the shortfall that employees are feeling in their paychecks because of increased medical costs. Many workers are feeling stressed at work and feeling the effects of tighter paychecks so employers have worked toward addressing that problem, Edwards says. That’s causing more companies to redesign their retirement plans and stretch the employer match to a higher percentage to encourage employees to put more money into the plan.

“This doesn’t solve the paycheck pinch, if you will, but it makes the employer’s dollars go further,” she says.

The oil and gas industry is unique in that it usually matches dollar for dollar, up to 15% of pay, any contributions made by employees into their employer-sponsored 401(k) plan. The catch is those funds are matched with company stock. There is no cash outlay, Edwards says.

“It is still a benefit to employees but it costs them less to do it,” she says.

That explains the large deviation between what the oil and gas industry puts toward retirement benefits and what other industries are contributing.

Because certain industries are more competitive, these types of benefits become more important in attracting and retaining top talent, she says, especially for skilled workers who are specific to that industry, such as nurses in healthcare and oil and gas engineers in the oil and gas industry.

“I think most employers know their healthcare costs are expensive, but there is less disparity on the healthcare side of things,” Edwards says. “The numbers and percentages are pretty tightly bundled. We see a bigger spread on the retirement side.”

According to Willis Towers Watson’s most recent Global Benefits Attitudes Survey, 62% of employees say they would be willing to pay a higher amount out of their paycheck each month to have a more generous retirement benefit, and 63% say they would pay a higher amount to have access to a guaranteed retirement benefit.

Employers need to understand that this disparity across industries exists, says Edwards, because many local employers compete for talent with employers in different industries than themselves. For instance, a software company in Madison, Wis., may compete for top tech talent with the local university hospital system, so it is up to both industries to know how much these other industries are willing to pay for the same job title.

“If you find your benefits fall short, you can use non-qualified plans as a way to entice individuals to join your firm or retain them,” she says. Companies should consider offering an enhanced compensation structure, beef up their bonus or pay higher wages to remain competitive.

“Focus on the total benefits value and communicating that total value: cash plus healthcare plus retirement,” she says. “Many companies don’t have retiree medical anymore but if they did it would be another level.”

Benefits information is included in the Department of Labor’s Form 5500. Many companies don’t realize that they can do a bit of sleuthing through the Form 5500 filings to see what their competition is offering for retirement benefits to their employees, she adds.

“It is surprising to us that companies don’t know who their competitors are,” she says. “They don’t have a formal list but if they do have a list, they don’t know what industries they are in and what that industry is paying.”

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Retirement planning Retirement benefits Retirement readiness Retirement income 401(k)