DC, DB Plans Hurt by Rising Health Care Costs

Rapidly rising health care costs are putting pressure on corporate benefits budgets—including money for defined contribution and defined benefits plans—according to a survey released Oct. 18 by Diversified.

Indeed, aside from health-care benefits, the only corporate benefits budget item that grew between 2009—when Diversified last conducted the survey—and 2011 was corporate 401(k) plans, which increased two percentage points to 15 percent in the latest survey.

The percentage of corporate budgets devoted to defined benefit plans, nonqualified deferred compensation plans, 401(a) plans, life insurance and disability insurance all declined during this period, according to a report on the survey.

Among other results, the report said 48 percent of respondents have implemented automatic enrollment, 32 percent now use automatic escalation and 29 percent use automatic rebalancing. Among plans offering automatic enrollment, 54 percent offer it only to new employees.

Diversified noted that 53 percent of respondents said their plans have automatic deferral rates of 3 percent or less. “It’s not enough” to achieve adequate funds for retirement, Laura White, vice president of marketing and research, said in an interview. She recommended that plans raise the default rate to 6 percent and/or provide auto-escalation features.

“The fact that the default levels are not sufficient, combined with the rise in cost and complexity of health-care benefits, will continue to prove challenging to companies in terms of helping employees prepare for retirement,” the Diversified report said.

The latest Diversified survey, conducted online during May and June, obtained responses from 270 retirement benefits administrators. The survey is conducted every other year.

Diversified found that 34 percent of the respondents’ benefits budgets were devoted to health care, up from the 23 percent in 2009.

Robert Steyer writes for Pensions & Investments, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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