An increasing number of U.S. workers say they are willing to trade some of their pay for more secure and generous retirement and health care benefits, according to a survey released today by Towers Watson. In addition, nearly half of workers polled say they are worried about reductions in their retirement benefits over the next two years.
“Since the economic crisis, employees have been paying much closer attention to their retirement readiness, and many are willing to look at new ways to balance their mix of pay and benefits,” says Kevin Wagner, a senior retirement consultant at Towers Watson. “This may reflect their firsthand experience with financial market volatility, continuing worries about the economy and fears of future cutbacks to benefits. As a result, retirement security has become significantly more important to them.
The Towers Watson survey found that more than half (55%) of respondents are willing to pay a higher amount from each paycheck to ensure they have a guaranteed retirement. That compares with 46% two years ago. Additionally, 50% of respondents say they would trade a portion of their pay to ensure they have access to health care benefits if they retire before they are eligible for Medicare benefits, versus 40% in 2009. More than half (53%) of those polled said they would be willing to trade a portion of their pay in return for more generous benefits.
“As health care costs increased, it increased even faster for workers. Employees have had to share more cost in the heath care in they seek, and as employees have been asked to share more cost, which has helped contribute to lower increases in health care costs over the years. Consequently this trend will probably continue,” says Mike Thompson, a principal and NY-metro healthcare practice leader for PwC Human Resource Services. “While employers recognize that employees share in the cost of health care services they’ll use less, they need to be sensitive to affordable care for those employees so they don’t abandon care.”
This growing interest in retirement security is not limited to older workers. The survey found that some of the most dramatic changes in attitudes toward risk, rewards and security trade-offs have been among younger employees and those with a defined benefit plan. Among DB plan participants younger than 40, the number willing to pay for a guaranteed retirement benefit jumped by nearly 70%, from 39% in 2009 to 66% in 2011.
A possible reason for this may be that young people invested in DB plans are likely to be offered a DC plan through an employer, and therefore have more money in the game to worry about. “The more you have the more you worry about. It could well be that the people who were asked were part of a DB plan that was frozen, which makes them uneasy,” says Bill Daniels, a senior retirement consultant at Towers Watson.
Thompson, surprised to hear young people were invested in retirement issues, said: “I know that people who are close to retirement are intimately sensitive because it’s causing them to think about the need to stay on, but I’m surprised younger workers are getting engaged in the same way older workers are.” He said this may be due to the shift from DB pension plans to defined contribution plans, where workers of all ages are required more to manage risk.
The survey also found that employees fear cuts to benefits, or having to cost-share even more. More than four in 10 (44%) are worried about reductions to their retirement benefits over the next two years, with younger DB plan participants particularly concerned (63%). Employees are even more concerned about having to shoulder more financial responsibility for their health care costs. Nearly three in four employees (73%) are concerned about higher out-of-pocket health costs and copays over the next two years, compared with two-thirds (67%) in 2007.
“The fact is that predictable health costs and retirement guarantees have become significantly more important over the last few years to employees, no matter what their age. Employees are clearly becoming more interested in adjusting the balance between financial risk and opportunity toward security, especially when it comes to their retirement benefits. For employers, addressing employees’ retirement and health care benefit preferences could very well help to lessen their financial worries and increase engagement levels,” Daniels said.
Older employees, women, lower-paid workers and those with health issues are most willing to relinquish control over their retirement investments in exchange for more stability in their retirement benefits over the long term.
“It makes sense. They value financial security more than control. Effectively, employees would prefer to have more stability in what they can expect in retirement vs. having to manage it entirely it themselves,” Thompson said. The solution may lie somewhere between DC and DB plans, where both employees and employers share risks, he added.
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