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Employers Slash Retirement Benefit Spending

Analysis shows 25 percent cut over 14 years, but overall benefit costs keep rising

Employers have slashed retirement benefit spending

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A new study shows that employers have slashed the amount they contribute to retirement funds over the past 15 years.

More bad news on the retirement front: Employers cut the amount they pay for total retirement benefits by 25% between 2001 and 2015, according to a new analysis.

The study, by global advisory and solutions company Willis Towers Watson, showed that even that cut didn’t stop the upward march of benefits costs for employers. Those costs rose from 14.8 percent of pay in 2001 to 18.3 percent of pay in 2015, an increase of 24 percent. Health care was the main culprit for the increase, with its cost more than doubling from 5.7 percent to 11.5 percent of pay in that time period.

The retirement cost cuts came as employers shifted from defined benefit retirement plans to defined contribution plans such as 401(k)s

“Beyond the overall increase, there has been a seismic shift that can be characterized as a tale of two benefit programs,” John Bremen, managing director of human capital and benefits for Willis Towers Watson, said in a statement. "Health care benefits are eating up a larger portion of dollars while the amount spent on retirement programs is on the decline. This reallocation has major implications for employers and employees alike.”

The survey also suggested that spending so much more on health care and so much less on retirement “might not align with employee preferences and needs,” the company said in a statement. Companies should consider whether to encourage employees to more widely use health savings accounts, and should consider “wiser spending on health care,” said Alexa Nerdrum, a senior retirement consultant for the firm.

The analysis was based on a database of retirement and health care programs for more than 500 large and medium-size U.S. employers.

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