By offering health insurance coverage and retirement savings options, employers are providing greater retirement savings opportunities and ensuring a significantly lower tax burden for employees, a new report from the American Benefits Council finds.
The report, to be be released in its entirety in early 2018, was previewed at the trade group’s 50th anniversary symposium in Washington, D.C., on Nov. 30, was designed to measure the impact of employer-provided benefits.
Produced in cooperation with the Employee Benefit Research Institute, the report found that employer-sponsored benefit programs create a “uniquely effective social insurance system in the United States with an almost equal balance among the primary sources of income in old age,” especially when compared with other countries at a similar income level.
In 2015, for every $1 of employees’ tax expenditure, employers paid $4.61 to finance health benefits for workers, retirees and their families, said Peter Baxter, senior vice president at the National Rural Electric Cooperative Association, an Arlington, Va.-based trade group.
On the retirement side, in 2012, for every $1 of tax expenditure spent on retirement benefits, $7.15 was paid to retirees by employer-sponsored retirement plans, added Melissa Kahn, managing director at consultancy State Street Global Advisors in Washington.
Employer-provided benefits are available to 55.7% of the American population, which is more than double the total participation in the Medicare (19.4%) and Medicaid (16.7%) markets combined, Baxter said.
To understand the impact, EBRI conducted a simulation on observed behavior in the individual market in 2013, the last year before the Affordable Care Act’s individual mandate began, and found that as many as 113 million individuals in 2016 would not have been able to afford or would choose not to have purchased health insurance coverage in absence of employer-sponsored health benefits.
That is the “value of what is being delivered through the employer system,” Baxter said.
Employer-sponsored benefits also cover more, with an employer’s plan on average covering 83% of costs of healthcare claims, compared to 60% for non-group plans, according to the Congressional Budget Office. CBO noted in a separate report that would amount to an annual out-of-pocket expense of $1,765 for a family enrolled in an employer plan compared to $4,167 for a family purchasing in the non-group market.
On the retirement side, 80% of full-time civilian workers have access to a plan and 65% participate, Kahn said. Additionally, EBRI found that employer-sponsored pension and retirement savings funds hold assets of nearly $20 trillion — more than the current GDP of the United States.
The report found that at all income levels, employer-sponsored retirement plans “significantly improve” retirement savings adequacy.
In context, the current aggregate retirement savings shortfall in the United States, including costs of long-term care is $4.13 trillion. Without employer-sponsored retirement plans, that number jumps 71% to $7.05 trillion, Kahn said.