United States Government Accountability Office

GAO Report to the Chairman, Committee 

on Education and Labor, House of 

Representatives 

EMPLOYERSPONSORED 

HEALTH AND 

RETIREMENT 

BENEFITS 

Efforts to Control 

Employer Costs and 

the Implications for 

Workers 

March 2007 

 

GAO-07-355 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2007

EMPLOYER-SPONSORED HEALTH AND 

RETIREMENT BENEFITS 

Efforts to Control Employer Costs and 

the Implications for Workers 

Highlights of GAO-07-355, a report to the 

Chairman, Committee on Education and 

Labor, House of Representatives 

Many U.S. workers receive health

and pension benefits from

employers, and the cost of these 

benefits represents a growing share 

of workers’ total compensation. 

Employers have made changes to 

control these rising costs,

contending that these changes will 

allow them to remain competitive, 

particularly in an increasingly

global market. Some advocacy

groups are concerned that workers 

may receive reduced benefits or

incur additional costs as a result of

employers’ cost-control strategies. 

Moreover, they contend that these 

changes may disadvantage certain 

groups of workers, such as sicker, 

older, or low-wage workers. 

GAO was asked to examine the 

practices employers are using to

control the costs of benefits. To 

evaluate changing employer benefit

practices and their potential 

implications, GAO examined: (1) 

current and emerging practices 

employers are using to control the 

costs of health care benefits; (2)

current and emerging practices 

employers are using to control the 

costs of retirement benefits; and

(3) employers’ workforce 

restructuring changes. GAO 

reviewed studies of employer 

benefit trends; interviewed

representatives of business,

government, labor, and consumer

advocacy and research

organizations; and reviewed and 

analyzed data from surveys of

employee benefits. The Department

of Labor provided technical

comments, which were

incorporated as appropriate. 

Many employers have recently changed health benefits, often to control 

costs. The share of employers offering health benefits has declined from 

2001 to 2006, due mostly to an 8-percentage point drop in the share of small 

employers offering benefits. Many employers that offer health benefits have 

required workers to pay a higher share of out-of-pocket costs and some have

recently introduced consumer-directed health plans, which trade lower 

premiums for significantly higher deductibles. Also, some employers now 

offer mini-medical plans that provide more limited coverage at lower 

premiums. Similar to coverage for active workers, an increasing share of 

retiree health benefits costs is being shifted to retirees and many employers

have terminated benefits for future retirees—a trend that experts believe 

will continue. Some of these recent changes may affect some workers more 

than others, such as low-wage workers who are less able to afford higher 

out-of-pocket costs and less healthy workers who use more health care. 

The trends in retirement benefits that have emerged over the last several 

decades are continuing. Active participation in defined benefit plans fell

from 29 million in 1985 to 21 million in 2003 as employers terminated 

existing plans or froze benefits for active employees. At the same time, 

active participation in defined contribution plans rose from 33 million in 

1985 to 52 million in 2003 as employers increased their offerings of these 

plans. Benefits experts stated that employers’ decisions on what type of 

retirement plans to offer reflects their preference for benefit cost control 

and predictability in funding and accounting. Employers’ decisions to offer 

defined contribution plans requires workers to assume more responsibility 

for their retirement planning; however, a growing number of employers are 

attempting to increase retirement savings by automatically enrolling workers 

and offering investment advice, for which recent legislation provides 

additional flexibilities. 

Workforce restructuring through the use of contingent workers—workers 

who are not employed full-time and year round with an employer—may 

affect workers’ access to and participation in benefit programs. Benefits 

experts presented mixed views on whether employers have been changing

the composition of their workforces to reduce benefit costs. 

Employers, individuals, and government share the responsibility for 

providing a U.S. benefits system that addresses the health and retirement 

needs of individuals of varying economic and health backgrounds, while 

allowing employers to remain competitive in a global market environment. 

The challenges workers face in assuming greater cost, risk, and control of 

their health and retirement benefits make it more difficult for low-wage 

earners to afford health care coverage and save for retirement. Although 

these challenges may weigh most heavily on the less wealthy and less 

healthy segments of the workforce, they affect a broad spectrum of the 

American workforce and could prove challenging to many over time. 

www.gao.gov/cgi-bin/getrpt?GAO-07-355.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barbara D. 

Bovbjerg at bovbjergb@gao.gov, or John E. 

Dicken at dickenj@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 5

Recent Changes in Employer-Sponsored Health Benefits Prompted 

by Cost Concerns May Particularly Affect Lower-Wage and Less 

Healthy Workers 17 

The Ongoing Shift to Different Types of Employer-Sponsored 

Retirement Plans Continues to Affect Both Employers’ and 

Workers’ Roles in Retirement Planning 28 

Workforce Restructuring Can Result in Different Benefit 

Arrangements for Workers and May Affect Employer Benefit

Costs 37

Concluding Observations 41 

Agency Comments 43 

Appendix I Description of Survey Data Used in Our Analysis 44 

Appendix II GAO Contacts and Staff Acknowledgments 48 

Related GAO Products 49 

Tables 

Table 1: Percentage of Firms Offering Health Benefits by Firm Size, 

2001 and 2006 18 

Table 2: Change in the Share of PPO-Enrolled Workers with 

Selected Cost-sharing Arrangements, 2004 and 2006 19 

Table 3: Share of Employers with over 500 Workers That Offer 

Health and Wellness Programs, 2001-2005 22 

Table 4: Percent of Surveyed Private-Sector Employers with 1,000 

or More Workers That Made Cost-Shifting Changes to 

Their Retiree Health Benefits in the Previous Year 23 

Table 5: Percentage Point Change in Rates of Employer 

Sponsorship of Health Benefits, and Worker Eligibility, 

Enrollment, Coverage, and Uninsurance, 2001-2005, by

Income Level, Based on the Federal Poverty Level (FPL) 25 

Page i GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 6: Employer-Sponsored Defined Benefit Plans and Active 

Participants, 1985, 1999, and 2003 29 

Table 7: Employer-Sponsored Defined Contribution Plans and 

Active Participants, 1985, 1999, and 2003 31 

Table 8: Percentage of Part-time Workers Participating in 

Employer-Provided Pension and Health Care Benefits, 

1999 and 2005 40 

Table 9: Hourly Cost of Retirement and Health Care Benefits for 

Full-time and Part-time Workers, 2005 41 

Figures 

Figure 1: Real Growth in Hourly Expenses Attributable to Wages, 

Health and Retirement Benefits, and Other Benefits 

between 1991 and 2005 7

Figure 2: Composition of the Contingent Workforce (February 

2005) 13

Figure 3: Share of Workforce Participating in Employer-Sponsored 

Retirement Plans, by Type of Plan 1985-1999 32 

Figure 4: Percentage of Full-time and Contingent Workers Offered 

Employer-Provided Pension and Health Care Benefits, 

2005 38

Figure 5: Percentage of Full-time and Contingent Workers 

Participating in Employer-Provided Pension and Health 

Care Benefits, 2005 39 

Page ii GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Abbreviations 

ADA Americans with Disabilities Act of 1990 

ADEA Age Discrimination in Employment Act of 1967 

BLS Bureau of Labor Statistics 

CDHP consumer-directed health plan 

CPS Current Population Survey 

DB defined benefit 

DC defined contribution 

DOL Department of Labor 

ERISA Employee Retirement Income Security Act of 1974

FASB Financial Accounting Standards Board 

FPL Federal Poverty Level 

HIPAA Health Insurance Portability and Accountability Act of 1996 

HMO health maintenance organization 

HRA health reimbursement arrangement 

HRET Health Research and Education Trust 

HSA health savings account 

IRA individual retirement account 

PBGC Pension Benefit Guaranty Corporation 

PEO Professional Employer Organization 

PPA Pension Protection Act of 2006 

PPO preferred provider organization 

PSCA Profit Sharing/401k Council of America 

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Page iii GAO-07-355 Employer-Sponsored Health and Retirement Benefits
United States Government Accountability Office

Washington, DC 20548 

 

March 30, 2007 

The Honorable George Miller 

Chairman 

Committee on Education and Labor

House of Representatives 

Dear Mr. Chairman: 

Many workers receive health and retirement benefits from their 

employers, and the cost of these benefits in recent years has risen faster 

than wages.1

 Between 1991 and 2005 the costs of health and retirement 

benefits increased by 34 percent compared to a 10 percent increase in 

wages. Employers have made changes to control the rising costs of these 

benefits, contending that these changes will allow them to remain 

competitive, particularly in an increasingly global market, by balancing 

cost containment with the need to offer attractive benefits. Some 

consumer advocacy groups and union representatives are concerned that

workers may receive reduced benefits or be required to absorb these 

rising costs as a result of employers’ cost control strategies. Moreover, 

they are concerned that cost control strategies may disadvantage certain 

groups of workers, such as those who are sicker, older, or low-wage 

earners. 

Although changes to control rising benefit costs are not limited to a 

particular industry, changes considered by industries that employ large 

numbers of workers, such as manufacturing and retail, have received

widespread publicity and prompted public debate on the role of employersponsored benefits in the United States. For example, an internal Wal-Mart 

memo that was released to the media in late-2005 described several 

proposed benefit changes that some labor and advocacy representatives 

thought would disadvantage certain low-wage workers. The strategies 

adopted by employers to control rising health and retirement benefits 

costs and the sustainability of employers’ continued ability to provide the 

benefits has significant implications for workers. Such strategies also have

implications for the federal government, which plays a key role in 

 1

 See GAO, Employee Compensation: Employer Spending on Benefits Has Grown Faster

Than Wages, Due Largely to Rising Costs for Health Insurance and Retirement Benefits,

GAO-06-285 (Washington, D.C.: Feb. 24, 2006). 

Page 1 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
financing these benefits through favorable tax treatment to employers that 

provide these benefits and to individuals directly through certain federal

programs. 

You requested that we examine certain practices employers are using to 

control the costs of benefits. To evaluate changes in employer benefits and 

their potential implications, we examined: 

1. current and emerging practices employers are using to control the 

costs of health care benefits and the potential implications of these 

changes; 

2. current and emerging practices employers are using to control the 

costs of retirement benefits and the potential implications of these 

changes; and 

3. employers’ workforce restructuring changes that may affect health and

retirement benefit costs and the potential implications of these 

changes. 

To examine the extent to which employers have changed health or 

retirement benefits and restructured their workforces, we obtained and 

reviewed published studies examining trends in employer benefits, 

particularly employer strategies to contain rising benefits costs. We 

interviewed individuals representing many perspectives on this issue, 

including benefits consultants, labor union and industry representatives, 

consumer advocates, academic and policy researchers with expertise on

employer-sponsored benefits, and officials from the U.S. Department of 

Labor (DOL). We also reviewed and analyzed data from several surveys 

that are conducted annually, including two nationally representative

surveys of employers’ health benefit plans, one national survey on the 

retiree health benefits offered by large private-sector employers, and two 

large federal surveys that address employer-sponsored health and 

retirement benefits. In addition, we reviewed relevant federal laws and 

regulations. We also reviewed and analyzed data from employers’ required

annual filings on their retirement plans with federal agencies such as DOL 

and with the Pension Benefit Guaranty Corporation (PBGC). We assessed 

the reliability of the data from these surveys and determined that the data

were sufficiently reliable for the purposes of our study. Our analyses of 

changes in employer benefit practices focused on the most recent years of 

data available. The analysis of health benefits focused primarily on years 

2001 through 2006. Our analysis of changes in private employers’ 

retirement benefit plans and participation focused primarily on years 1999

Page 2 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
through 2003. Our analysis of changes in the composition of employers’ 

workforces focused primarily on years 1999 through 2005. Because we 

relied on existing survey data to measure the extent of changes in 

employee benefits, this report may not address certain changes that may 

have occurred very recently or are not widespread. (See app. I for a 

detailed description of survey data we reviewed and analyzed.) For a list 

of related GAO products see the end of this report. We performed our 

work from April 2006 through February 2007 in accordance with generally

accepted government auditing standards. 

Many employers have recently changed employee health benefits, often to 

control costs, and some of these changes may particularly affect lowerincome and less healthy workers. Overall, the share of employers offering

health benefits has declined from 2001 to 2006, due mostly to an 8-

percentage point drop in the share of small employers offering benefits. 

Among employers that offer health benefits, many have changed plan 

design features or begun offering different types of health plans to control 

costs. For example, employers have shifted additional responsibility for 

health care costs to workers in the form of increased deductibles, copayments, and coinsurance that employees must pay out-of-pocket, and 

some have recently introduced consumer-directed health plans (CDHP), 

which trade lower premiums for significantly higher deductibles. Also, 

some employers are beginning to offer mini-medical plans that provide 

more limited coverage at lower premiums. These plans may benefit lowwage workers who were previously uninsured, but may also represent 

erosion in coverage where they replace more comprehensive plans. In 

addition, regarding retiree health benefits, the share of employers that 

offer benefits to current retirees has remained relatively stable in recent 

years, although similar to active workers, employers have shifted 

additional costs for these benefits to retirees. In addition, many employers 

have terminated benefits for future retirees, and experts believe this trend 

will continue. Some of these recent changes to health benefits may 

particularly affect low-wage workers who are less able to afford higher 

out-of-pocket costs, and less healthy workers who use more health 

services. Survey data indicate that from 2001 through 2005, eligibility for 

health coverage and the extent to which workers are covered have both

declined most among low-wage workers. 

Results in Brief 

With regard to retirement benefits, the changes that employers are making 

to their pension plans represent a continuation of trends that have 

emerged over the last several decades. The number of defined benefit 

(DB) plans and the percentage of active workers participating in these 

Page 3 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
plans have decreased over the past several decades, while defined 

contribution (DC) figures have risen.2

 In 1985, there were approximately 

29 million active participants in about 170,000 DB plans. In 2003, these 

numbers had declined to 21 million active participants in about 47,000 

plans. Of the remaining DB plans, some are hybrid plans—sharing 

characteristics of both DB and DC plans—a trend that may increase in 

response to recent legislation. In contrast to DB plans, the number of DC 

plans and active participants in these plans has generally continued to 

increase. In 1985, there were approximately 33 million active participants 

in over 460,000 DC plans, which increased to 52 million active participants 

in over 650,000 plans in 2003. Some workers participate in both types of 

plans. Benefit experts stated that employers’ decisions on what type of

retirement plans to offer reflects their preference for retirement benefit 

cost control and funding and accounting predictability. However, 

employers’ decisions affect worker roles in retirement planning. With DC 

plans, workers assume the responsibilities and risks for managing their 

retirement accounts. A growing number of employers are attempting to 

increase participation rates and retirement savings in DC plans by 

automatically enrolling workers and offering new types of investment 

funds, and may take advantage of flexibilities available under recent 

legislation by offering workers investment advice. 

Workforce restructuring through the use of contingent workers—workers 

that are not employed full-time and year round with a single employer—

may affect workers’ access to and participation in employer-sponsored 

benefit programs. For example, contingent workers are not offered and do

not participate in employer-provided pension and health care benefits to 

the same extent as full-time workers. In 2005, 64 percent of full-time 

private- and public-sector workers participated in employer-provided 

pension plans and 72 percent participated in employer-sponsored health

plans, compared to only 17 percent and 13 percent of contingent workers, 

respectively. The use of contingent workers can reduce employers’ costs 

associated with providing these benefits; however, benefits experts 

presented mixed views on whether employers have been changing the

composition of their workforces for this reason. 

 2

 DB pension plans are funded by employers and typically provide periodic payments to

retirees beginning at retirement age that are based on a formula that considers participant

pay, age, and years of service. DC plans are individual worker accounts to which employers 

and workers can make contributions, with the amount available for retirement dependent 

upon accumulated contributions and investment returns over the course of the period

leading up to retirement. 

Page 4 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
The responsibilities of employers and workers in financing health care and 

retirement benefits continue to evolve in an increasingly competitive 

global market. Changes in benefit design that shift more of the cost, risk, 

and control to workers may help employers control their benefit costs and 

provide greater benefit choices for some workers; however, such changes

have other consequences. The challenges workers face can make it more 

difficult for low-wage earners to afford health care coverage and save for 

retirement. Although these challenges may weigh most heavily on the less 

wealthy and less healthy segments of the workforce, they affect a broad 

spectrum of the American workforce and could prove challenging to 

many. Employers, individuals, and the government share the responsibility 

for providing a U.S. benefits system that addresses the health and 

retirement needs of individuals of varying economic and health 

backgrounds, while allowing employers to remain competitive in a global 

market environment. 

We provided a draft of this report to DOL. DOL did not provide written 

comments, but did provide technical comments, which we incorporated as 

appropriate.

Many U.S. workers participate in employer-sponsored health benefit and 

retirement pension programs and the costs of these benefits in recent 

years have risen faster than wages. The designs of these benefit programs 

have changed over the course of the past several decades, and these 

changes have often been made in response to growing costs associated 

with providing the benefits. Millions of workers are not in traditional fulltime, year-round work arrangements and some may legally be excluded 

from benefit plans that are offered to full-time workers. Employers are not 

required to offer health and retirement benefits to any workers, although 

when they are offered, federal laws provide some protections to workers 

related to their provision. 

Background 

The U.S. System of 

Employer-Sponsored 

Health and Retirement 

Benefits 

The U.S. system of employer-sponsored health and retirement benefits is

financed by employers, individual worker contributions, and state and 

federal governments through foregone tax revenue. The degree to which 

individuals rely on employer-sponsored health care and retirement 

benefits depends on several factors, including age, income, employment 

status, and access. In addition to wages and other benefits, employers 

often provide workers with health and retirement benefits as a part of 

their total compensation. Employer-sponsored health benefits provide 

coverage to over 155 million individuals through coverage of active 

Page 5 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
workers and their dependents.3

 Employers may also provide health 

benefits to Medicare-eligible retirees and individuals who retire prior to 

their eligibility for Medicare (typically referred to as early retirees) and 

their dependents. Approximately 12 million retirees on Medicare and 3 

million early retirees are covered under employer-sponsored health 

benefits.4, 5

 About half of all private-sector workers participate in an 

employer-sponsored retirement plan according to the Bureau of Labor 

Statistics (BLS) National Compensation Surveys.6

 The overall rate of 

worker participation in employer-sponsored retirement pension plans has

not changed significantly in the last few decades. 

Health and retirement benefits help employers attract and retain skilled 

workers; however, the costs of these benefits have accounted for an 

increasingly larger share of workers’ total compensation. During most of 

the period from 1991 until 2002, wages and benefits increased by about the 

same percentage, after which time real wages began to stagnate and real

benefit costs continued to grow through 2005.7

 Figure 1 shows the real 

growth in hourly expenses attributable to wages and benefits between 

1991 and 2005. 

 3

 The Kaiser Family Foundation (Kaiser) and Health Research and Educational Trust 

(HRET) Employer Health Benefits 2006 Annual Survey. 

4

 Kaiser/Hewitt Surveys on Retiree Health Benefits, 2003-2005. 

5

 Employer-sponsored coverage for early retirees often mirrors coverage for current

workers. Retiree coverage for Medicare-eligible retirees supplements benefits covered

under Medicare and provides additional cost-sharing protections, such as limiting retiree 

out-of-pocket expenses, which traditional Medicare fee-for-service does not provide. 

6

 According to the National Compensation Survey, the rates of private-sector workers 

participating in employer retirement plans were 49 percent in 2003 and 51 percent in 2006. 

7

 GAO, Employee Compensation: Employer Spending on Benefits Has Grown Faster 

Than Wages, Due Largely to Rising Costs for Health and Retirement Benefits, 

GAO-06-285 (Washington, D.C.: February 2006). 

Page 6 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Figure 1: Real Growth in Hourly Expenses Attributable to Wages, Health and 

Retirement Benefits, and Other Benefits between 1991 and 2005 

0

10

20

30

40

Other benefitsa

Wages

Health and

Percent

Source: GAO analysis of the Bureau of Labor Statistics data from the National Compensation Survey.

retirement 

benefits

34

10 10

Note: Data includes private employers and the analysis used constant 2004 dollars from the BLS 

Consumer Price Index Research Series to control for the effect of inflation. 

a

These benefits include Social Security, Medicare, federal and state unemployment and workers 

compensation, and voluntary benefits such as paid leave, supplemental pay, and life insurance. 

Health and retirement benefits are given various forms of favorable federal 

tax treatment to encourage employer sponsorship and worker 

participation. For example, the cost of employer-sponsored health 

insurance premiums may be excluded from employers’ taxable earnings 

and are not included in workers’ income for income taxes and from the 

calculation of Social Security and Medicare payroll taxes. Similarly, the 

federal government provides preferential tax treatment to employers and 

workers under the Internal Revenue Code for retirement contributions 

that meet certain requirements. 

Workers may generally choose whether or not to participate in employersponsored health programs and in some retirement programs. For 

example, some individuals may have access to health insurance through a 

Page 7 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
family member’s employer or through a publicly funded program, such as 

Medicaid or Medicare,8

 while others may choose to purchase health 

insurance on their own or decide to forego coverage. Almost all workers 

are covered by Social Security and workers may include other financial

resources as part of their retirement planning, such as participation in an

employer-sponsored retirement plan, when offered, and other savings and 

financial resources.9

 Some employer-sponsored retirement plans make 

contributions toward workers’ plans without requiring any additional 

contributions from workers.10 If workers are required to contribute in 

order to participate in an employer retirement plan, some workers may 

choose not to participate. 

Evolution of EmployerSponsored Health Benefits 

The costs of health care and health-related benefits have been increasing 

for decades. Several factors help explain the rise in costs, including 

increasing demand for services, advances in expensive medical 

technology, and an aging population. The Kaiser Family Foundation and 

Health Research and Educational Trust (Kaiser/HRET) Annual Employer 

Health Benefits Surveys found that from 2001 to 2006 annual premium 

costs for single and family coverage rose by about 60 and 63 percent, 

respectively, and in each of those years premiums grew more than twice 

the rate of wages.11

To contain rising health care costs, employers have made several changes

to health benefits. For several decades, traditional fee-for-service plans 

were the predominant form of private health benefits sponsored by 

employers. These plans essentially reimbursed any providers for services 

covered by a plan based on providers’ actual costs with little or no 

incentives to control utilization. In the late 1980s employers increasingly 

 8

 Medicaid is a joint federal and state program that finances health care for certain lowincome individuals and Medicare is the federal health care program for the elderly and

disabled. 

9

 Some ways of savings also provide tax incentives. For example, Individual Retirement 

Accounts (IRA) authorized by ERISA allow workers to make tax-deductible and 

nondeductible contributions to individual accounts for retirement savings.

10 Some employer-sponsored retirement plans may also allow additional voluntary worker

contributions. 

11 Survey data show that 2006 had the slowest rate of premium growth at 7.7 percent. 

Premiums for family coverage have risen more quickly than for individual coverage, with 

the average annual costs for single and family coverage in 2006 across all employers of

$4,242 and $11,480, respectively. 

Page 8 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
looked to managed care plans, such as health maintenance organizations 

(HMO) and preferred provider organizations (PPO), as a way to contain 

these rising costs. HMOs and PPOs generally rely on providers to control 

service utilization and they provide financial incentives to encourage 

patients to use network providers who have agreed to accept fee 

discounts. Under an HMO, patients may be restricted to using only 

network providers, and they typically require that all specialty care be

coordinated through a primary care physician. While enrollment in HMOs 

increased, some enrollees became resistant to the restrictions imposed by 

the plans and employers increasingly offered PPOs that offered more 

provider choice and flexibility. PPO enrollees face lower cost-sharing 

requirements when they receive care from network providers, but may 

choose non-network providers at a higher cost and do not typically need 

referrals to see a specialist.12 Despite these cost-control mechanisms, 

health care costs continued to rise. 

While managed care relies primarily on health care providers to control 

rising costs, more recently employers have also looked to workers to 

assume greater responsibility for controlling these costs, such as by 

offering consumer-directed health plans (CDHP). CDHPs combine a highdeductible health plan with a tax-advantaged account that enrollees can 

use to pay for a portion of their health care expenses.13 Unused balances 

may accrue for future use, potentially giving employees an incentive to 

purchase health care more prudently. The higher deductibles generally

result in lower health insurance premiums because the enrollee bears a 

greater share of the initial cost of care. Although not required to do so, 

CDHP insurance carriers typically provide enrollees with decision-support 

tools, such as Web-based information on costs of services and quality of 

 12 Cost-sharing refers to the enrollee’s share of payments for covered services, such as copayments—a fixed charge—and coinsurance—a percentage of the payment.

13 The most common tax-advantaged savings arrangements that enrollees can use to pay for 

a portion of their health expenses are health reimbursement arrangements (HRA) or health

savings accounts (HSA). These accounts allow funds to accrue over time. HRA accounts

are owned by the employer, and only the employer may contribute to them. HSAs are 

owned by the enrollee and, therefore, are portable when workers change jobs. Both

employers and enrollees can make contributions to the HSA.

Page 9 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
providers, to help them become more actively involved in making health

care purchasing decisions.14

While not a new concept, employers often offer voluntary health and 

wellness programs in combination with CDHPs. These programs are 

intended to encourage enrollees to engage in healthy behaviors to help 

prevent certain chronic diseases and improve overall health. These 

benefits often include disease management programs in which individuals

with certain high-risk conditions have access to a case manager to help 

them manage their disease; access to health advice lines; behavior 

modification programs such as smoking cessation; and health risk 

assessment programs to assess enrollees’ potential for health problems 

and suggest ways for participants to reduce their risk of disease. Health 

risk assessment programs can also provide employers with information 

about the overall health profile of their worker population that can be

used to design targeted disease management and behavior modification 

programs. 

While most employer-sponsored health benefit plans provide 

comprehensive coverage, employers may also offer health benefits 

through mini-medical plans. A mini-medical plan provides basic medical

coverage combined with lower premium costs and a lower coverage cap 

than a comprehensive or major medical plan. Annual coverage limits 

typically include restrictions on the number of services covered, a low 

maximum dollar cap on spending, or both. For example, a mini-medical 

plan might cover no more than five doctor visits or no more than $200 per 

year for physician services. While these plans may include coverage for a 

wide range of hospital or specialty services, annual and lifetime coverage

caps for mini-medical plans are far below those of comprehensive health 

insurance plans. For example, a mini-medical plan’s coverage cap might be

set at $25,000 annually with a lifetime cap of $50,000, while many 

 14 Proponents of CDHPs contend that CDHPs can help restrain the growth in health care 

costs. They maintain that because account funds accrue over time, enrollees have an 

incentive to seek lower-cost health care services and to limit their discretionary spending

on health care by obtaining care only when necessary. Critics of CDHPs are concerned that

they will attract healthier workers than other plans, driving up costs in other plan options. 

There are concerns that these plans will lead some enrollees to stint on needed care and 

that enrollees may not have adequate information in order to seek lower-cost health care 

services. 

Page 10 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
comprehensive health plans have no coverage caps or have lifetime caps 

in excess of $1,000,000.15

Types of EmployerProvided Retirement 

Benefits 

Employer-provided retirement plans can generally be characterized as 

either DB or DC plans. Under a traditional DB plan, an employer provides

periodic payments to workers beginning at retirement, using a formula 

that considers a worker’s salary, age, and years of service. An employer is 

responsible for funding benefits in compliance with federal laws. To 

participate in employer-sponsored DB plans, workers must meet eligibility 

requirements; to receive any future benefits from the plans, workers must 

be vested. Vesting provisions specify when workers acquire the 

irrevocable right to pension benefits. Some employers offer hybrid DB 

plans that specify the current account balance as a dollar amount like a 

DC plan, but assume the financial risk to provide that amount, like a DB 

plan. For example, a common type of hybrid plan is a cash balance plan, 

which expresses benefits as an “account balance” based on hypothetical 

pay credits (percentage of salary or compensation) and hypothetical 

interest credits to employee accounts rather than predetermined payment 

amounts at retirement.16 Qualifying DB plans are federally insured by the 

PBGC. The agency provides retirement benefits to eligible workers in the 

event that their plans are terminated without sufficient assets to pay 

promised benefits. PBGC had an accumulated $19 billion deficit at the end 

of federal fiscal year 2006. The recently passed Pension Protection Act of 

2006 (PPA) seeks to increase PBGC funding by requiring some plans to 

pay higher PBGC insurance premiums and to bolster the financial viability 

of private pension plans by requiring some employers to increase the 

funding of their plans. 

Under DC plans, a worker’s benefits at retirement depend upon the 

accumulation of funds in a worker’s account, which may include employer 

and worker contributions, as well as the net investment returns on these 

 15 According to the 2005 Mercer National Survey of Employer-Sponsored Health Plans, the

median lifetime coverage caps for PPO plans was $2,000,000. 

16 Another type of hybrid DB plan is the pension equity plan, under which employees earn a 

percentage of final average pay expressed as a lump sum amount. These plans are similar 

to cash balance plans in that higher benefits accrue earlier in a career and lower benefits

accrue later in a career than under traditional DB plans. See GAO, Private Pensions: 

Implications of Conversions to Cash Balance Plans, GAO/HEHS-00-185 (Washington,

D.C.: Sept. 29, 2000) and Private Pensions: Information on Cash Balance Pension Plans,

GAO-06-42 (Washington, D.C.: Nov. 3, 2005).

Page 11 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
contributions. Workers are generally responsible for managing their 

retirement assets. The common type of DC plan is the 401(k), which 

allows workers to choose to contribute a portion of their pre-tax 

compensation to the plan under section 401(k) of the Internal Revenue 

Code.17 To encourage participation in and contributions to such plans, 

employers may wholly or partially match worker contributions. 

Individuals covered by employer retirement plans include: 

• active workers who currently work for the employer and participate in

the plan; 

• separated vested workers—workers who previously worked for an 

employer and qualify for future DB pension benefits or retain a DC 

account with their former employer;

• designated individuals of qualified deceased workers or retirees; and 

• retirees. 

For the purpose of studying changes in employer-sponsored retirement 

plan participation, active workers are considered a better measure 

because they are part of the plans that employers are currently offering to

workers. In contrast, a retired worker may receive benefits from an 

employer plan, even when the employer does not offer such a plan to

current workers. 

Workforce Restructuring Millions of Americans are no longer in traditional work arrangements as 

full-time, year-round workers. Many workers are often characterized as 

contingent workers, which include a variety of categories such as agency

temporary workers, contract company workers, day laborers, direct hire

temps, independent contractors, on-call workers, self-employed, and parttime workers.18 Employers’ use of contingent workers, workers that are 

not full-time, year-round employees, has remained constant over the last 

decade at about 30 percent of the total workforce. Employers hire 

 17 26 U.S.C. § 401(k) sets out requirements for plans to qualify for tax-deferred treatment.

Other types of DC plans include profit sharing plans, money purchase plans, target benefit 

plans, and employee stock-ownership plans.

18 “Contingent work” can be defined in many ways to refer to a variety of nonstandard work

arrangements. See GAO, Contingent Workers: Incomes and Benefits Lag behind Those of 

Rest of Workforce, GAO/HEHS-00-76 (Washington, D.C.: June 30, 2000) and Employment 

Arrangements: Improved Outreach Could Help Ensure Proper Worker Classification, 

GAO-06-656 (Washington, D.C.: July 11, 2006). 

Page 12 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
contingent workers to accommodate workload fluctuations, fill temporary 

absences, and screen workers for permanent positions, among other 

reasons. Workers take contingent jobs for a variety of reasons, both 

personal and financial. These reasons include workers’ preference for a

flexible schedule due to school, family, or other obligations; need for 

additional income; inability to find a more permanent job; and hope that 

the position will lead to permanent employment. Figure 2 shows the 

composition of the contingent workforce as of February 2005. 

Figure 2: Composition of the Contingent Workforce (February 2005) 

14%

24%

Agency temps

2%

Contract company workers

Independent contractors

Self-employed workers

Standard part-time workers

Source: GAO analysis of data from the CPS February 2005 Contingent Work Supplement.

43%

3%

Direct-hire temps

6%

7%

On-call workers/day laborers

Notes: The CPS is based on a sample of the civilian non-institutionalized population, which includes

both private- and public-sector workers. Actual estimated percentages do not add to 100 percent 

because of rounding. 

Also, some workers are employed through alternative arrangements, such 

as with Professional Employer Organizations (PEO). PEOs usually operate 

as co-employers with traditional employers.19 According to the National 

 19 PEOs provide management of human resources, employee benefits, payroll, and workers

compensation and unemployment insurance claims. 

Page 13 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Association of Professional Employer Organizations there are currently 2

to 3 million workers in such arrangements. 

Key Legal Protections for 

Workers and Retirees 

There are many federal laws that employers must adhere to if they provide 

health or retirement benefits to workers and retirees and if they consider 

options for reducing costs associated with providing employee benefits. 

For example, the Employee Retirement and Income Security Act, the Age 

Discrimination in Employment Act, the Health Insurance Portability and 

Accountability Act, and the Americans with Disabilities Act each contain 

important protections for some workers and worker benefits.20

The Employee Retirement Income Security Act of 1974 (ERISA) governs 

employee pension and welfare plans, which includes health care benefits.21

Although ERISA does not require any employer to establish benefit plans,

it does set certain minimum standards that most employers must satisfy to 

obtain tax advantages if they voluntarily elect to offer pension or health 

care benefits to their employees. ERISA requires that plan fiduciaries run 

the plan solely in the interest of participants and beneficiaries and for the 

exclusive purpose of providing benefits. Fiduciaries must act prudently 

and diligently and generally must diversify the plan’s investments in order 

to minimize the risk of large losses. ERISA requires employers to provide 

their employees with a summary plan document that contains important 

information about the benefit plan. They must also submit an annual 

report to the Secretary of Labor and plan participants that includes, among 

other things, a detailed financial statement, the number of employees 

enrolled in the plan, and the names and addresses of plan fiduciaries.22

Under ERISA, pension plans are generally subject to more extensive 

regulation than health benefit plans. For example, while ERISA has 

detailed participation and vesting requirements for pension plans, these 

 20 In addition, the National Labor Relations Act of 1935 is the primary law governing 

relations between unions and employers in the private sector. The statute guarantees the

right of certain employees to organize and to bargain collectively with their employers over

wages, hours, and other terms and conditions of employment, which courts have generally 

interpreted to include retirement and health care benefits for current workers. 29 U.S.C. §

151 et seq. 

21 29 U.S.C. § 1001 et seq. 

22 Each company sponsoring a tax-qualified DB and DC pension plan must file Form 5500, 

“Annual Return/Report of Employee Benefit Plan,” in a consolidated report for the Internal 

Revenue Service, the Department of Labor, and the PBGC. The latest DOL analysis of 

Forms 5500 is for the 2003 year filings. 

Page 14 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
rules do not apply to health plans. Furthermore, employers’ pension plans 

must meet non-discrimination testing requirements that seek to ensure 

that the plan design does not exceed certain limits in favoring highly 

compensated employees in participation and benefits over non-highly 

compensated employees. Although ERISA provides protections for much 

of the workforce, other laws permit employers to exclude some contingent 

workers, such as temporary, on-call, and part-time workers, from certain 

benefits plans.23

The Age Discrimination in Employment Act of 1967 (ADEA) was enacted

to promote the employment of older persons based on their ability rather 

than age, to prohibit arbitrary age discrimination in employment, and to

help employers and workers find ways of meeting problems arising from 

the impact of age on employment.24 The ADEA, with some exceptions, 

prohibits employers, employment agencies, and labor organizations from 

discriminating against individuals over 40 on the basis of age. Specifically,

employers may not refuse to hire an applicant or discharge an employee 

because of the individual’s age, and they may not otherwise discriminate 

against individuals with respect to compensation, terms, conditions, or 

privileges of employment because of their age. Furthermore, employers 

may not classify employees in a way that would deprive them of 

employment opportunities or otherwise affect their status as employees 

on the basis of age. However, the ADEA does identify some practices that

employers may engage in without violating the general prohibition against 

discrimination. For example, under certain circumstances, an employer 

may reduce benefit levels for older workers to the extent necessary to 

achieve approximate equivalency in cost for older and younger workers. A 

benefit plan is considered to be in compliance with the ADEA if the actual

amount of payment made, or cost incurred, on behalf of an older worker is 

equal to that made or incurred on behalf of a younger worker, even though 

the older worker may thereby receive a lesser amount of benefits or 

insurance coverage.

25

 23 For example, ERISA allows employers to exclude workers who have worked less than

1,000 hours in a 12-month period from entering their pension plans. In addition, some

temporary, on-call, or other contingent workers may not be considered employees and

therefore would not be entitled to benefits under a plan. 

24 29 U.S.C. § 621 et seq. 

25 29 C.F.R. § 1625.10(a)(1). 

Page 15 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Among other things, the Health Insurance Portability and Accountability 

Act of 1996 (HIPAA) prohibits employers and health insurance companies

from discriminating against employees on the basis of their health status.26

Under HIPAA, an employer may not establish any employee eligibility or 

continued eligibility rules that are based on certain health-status-related 

factors, as applied either to the employee or his or her dependents. Healthstatus-related factors are defined broadly to include both physical and 

mental medical conditions, an individual’s past claims experience, receipt

of health care, medical history, genetic information, disability, and 

evidence of insurability. This prohibition on discrimination does not 

require that an employer offer particular benefits, nor does it prevent an

employer from using limits or restrictions on the amount, level, extent, or 

nature of the benefits for similarly situated employees. 

Title I of the Americans with Disabilities Act of 1990 (ADA) prohibits 

discrimination in employment on the basis of disability.27 Specifically, 

employers with 15 more or employees are prohibited from discriminating 

against individuals with disabilities in regard to job application 

procedures, hiring, advancement, or discharge, compensation, job training, 

and other terms, conditions, and privileges of employment. To be 

protected by the ADA, a person must have a disability, as defined in the 

law, and be capable, with or without reasonable accommodation, of 

performing the essential functions of the position that he or she holds or 

desires. Reasonable accommodation may include, among other things, 

making existing facilities used by employees readily accessible to and 

usable by individuals with disabilities, as well as job restructuring, 

modified schedules, or the acquisition or modification of equipment or 

devices. 

 26 26 U.S.C. § 9802; 29 U.S.C. § 1182; 42 U.S.C. § 300gg-1. 

27 42 U.S.C. § 12101 et seq. 

Page 16 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Many employers have changed employee health benefits in several ways to 

respond to rising costs while trying to continue to meet the demands of 

their workforce. As health care costs rise, the share of employers offering 

health benefits has fallen and employers have shifted responsibility for 

paying more health care costs to current workers and retirees. Employers 

have also begun offering new types of health plans to their workers, 

including CDHPs and mini-medical plans. Some of these changes may 

particularly affect low-wage or less healthy workers. 

Recent Changes in 

Employer-Sponsored 

Health Benefits

Prompted by Cost 

Concerns May 

Particularly Affect 

Lower-Wage and Less 

Healthy Workers 

Fewer Small Employers 

Offered Health Benefits 

In recent years, the share of employers offering health benefits has 

declined, due largely to a decrease in the share of small employers offering 

coverage, and the share of individuals covered by these benefits has also 

declined.28 While the share of large employers offering health benefits 

remained fairly constant between 2001 and 2006 at about 98 percent, the 

share of small employers (with 3-199 employees) offering them dropped 

from 68 percent to 60 percent (see table 1). Health policy experts from one 

organization we interviewed told us this decline is likely due to new 

employers choosing not to offer coverage rather than existing employers 

dropping coverage.29 Employer survey data show that in 2006, 74 percent 

of employers not offering health benefits cited high premiums as very 

important in their decision not to offer them.30 The percent of all workers 

covered by employer-sponsored health plans has also decreased in recent 

years, falling from about 73 percent in 2001 to about 70 percent in 2005.31

 28 Because workers may choose whether or not to participate in employer-sponsored health 

benefits, we separately report on the share of employers who offer coverage and the share

of workers who are covered by these benefits. 

29 These experts told us that it is difficult to drop health benefits once offered because the

offer of health benefits is an important factor for worker retention and morale. 

30 The Kaiser/HRET Employer Health Benefits 2006 Annual Survey. 

31 Current Population Survey Data, 2001 to 2005. Data for 2006 were not available. 

Page 17 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 1: Percentage of Firms Offering Health Benefits by Firm Size, 2001 and 2006 

 2001 2002 2003 2004 2005 2006

All employers 68 66 66 63 60 61

Large employers (200 or more workers) 99 98 98 99 98 98

Small employers (3 to 199 workers) 68 66 65 63 59 60

 50-199 workers 96 95 95 92 93 92

 25-49 workers 90 86 84 87 87 87

 10-24 workers 77 70 76 74 72 73

3-9 workers 58 58 55 52 47 48

Source: The Kaiser Family Foundation and Health Research and Educational Trust Employer Health Benefits, 2001 to 2006 Annual

Surveys. 

Note: Data include private- and public-sector employers, and exclude employers with fewer than

three employees.

Many Employers Changed 

the Design of Health 

Benefit Packages 

Industry experts and survey data indicate that employers are changing

health benefits packages in several ways. 

While the share of premiums borne by workers showed little variation for

several years, employers recently shifted more responsibility for the costs 

of health benefits to workers by increasing deductibles, co-payments, and 

coinsurance. Many employers recently introduced deductibles for services 

where none previously existed. According to one survey, there were 

steady increases in the share of employers that required deductibles for 

PPO in-network care and HMO inpatient hospital services between 2001 

and 2005—with total increases of 20 and 24 percentage points, 

respectively.

32 Employers also recently increased annual deductible 

amounts. According to another survey, annual deductibles increased by 58 

percent between 2001 and 2005 for workers enrolled in single PPO 

coverage from $204 to $323.33 Costs were also shifted to workers through 

increased co-payments and coinsurance at the point of care. Recent data

Shifted More Responsibility for 

the Costs of Health Benefits to 

Workers 

 32 Mercer National Survey of Employer-Sponsored Health Plans, 2001 to 2005. Data for 2006

were not available. 

33 The Kaiser/HRET Employer Health Benefits Annual Survey, 2001 and 2005. Comparable 

data for 2006 were not available. 

Page 18 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
shows that among workers enrolled in PPOs that required either copayments or coinsurance, the co-payment amounts and coinsurance rates

increased for many workers (see table 2). 

Table 2: Change in the Share of PPO-Enrolled Workers with Selected Cost-sharing

Arrangements, 2004 and 2006 

Share of covered workers 

2004 2006 

Percentage point 

change 2004-2006

Co-payment worker pays 

$5 to $15 53 38 -15

$20 to $30 43 59 16

Coinsurance worker pays 

10 to 15% 40 28 -12

20 to 25% 56 68 12

Source: GAO analysis of the Kaiser Family Foundation and Health Research and Educational Trust Employer Health Benefits, 2004 

and 2006 Annual Surveys. 

Notes: Data include workers employed by private- and public-sector employers. Co-payments and 

coinsurance apply to an in-network physician office visit. Comparable data were not available prior to 

2004. 

Although employers continue to report cost-sharing increases, some 

benefits representatives have indicated that this trend may change due to 

employers’ concerns about workers’ willingness to absorb more costs. 

Employer survey data show that the share of employers that reported 

future plans to increase cost-sharing was 23 percent in 2003, but fell to 10

percent by 2005.34

Some employers are beginning to offer new health plan options to their 

workers, including CDHPs and mini-medical plans, either to control costs 

or to meet the needs of certain workers. For example, one employer 

survey found in 2006 that 7 percent of all firms offering health benefits 

offered CDHPs, up from 4 percent in 2005.

35 This growth was largely due to 

an increase in the percent of employers offering HSA-qualified plans, 

which increased from 2 percent in 2005 to 6 percent in 2006. According to

this same survey, among employers who offered HSA-qualified CHDPs in 

2006, 37 percent did not make a contribution to workers’ HSA accounts. 

Introduced New Health Plan 

Options 

 34 Mercer National Survey of Employer-Sponsored Health Plans, 2003 and 2005. 

35 The Kaiser/HRET Employer Health Benefits 2005 and 2006 Annual Surveys. Surveys prior

to 2005 did not collect information related to CDHPs. 

Page 19 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
While employer interest in offering CDHPs is increasing, some survey 

results suggest that enrollment is either holding steady or growing slightly, 

and overall enrollment remains low.36, 37

Surveys have found and benefits consultants told us that employers are 

offering CDHPs as a way to shift more of the cost and responsibility of 

health care to workers, while also encouraging them to become more 

actively engaged in their own health care decisions. According to 

consultants, employers hope that CDHP enrollees will decrease their use 

of unnecessary medical services, leading to immediate cost-savings, and 

also be encouraged to lead healthier lifestyles, potentially leading to longterm cost savings. Early evidence suggests that premiums are growing 

more slowly among CDHPs than among PPOs and HMOs.38

Employer interest in mini-medical plans may also be growing, although 

data to measure this trend is limited.39 For example, industry 

representatives told us that mini-medical plans are gaining acceptance 

among companies including some large employers in the retail and service 

sectors. In addition, in 2006 36 percent of employers with over 10,000 

workers reported being interested or very interested in adopting these 

plans, with the highest reported interest among the retail, service, and 

transportation industries.40 Experts and industry officials we interviewed 

 36 The Kaiser Family Foundation has indicated that, among workers whose employers offer

health benefits, enrollment in CHDPs held steady at 4 percent between 2005 and 2006. 

Mercer’s survey found that of workers who were eligible for their employers’ health plans,

enrollment in CDHPs increased from 1 to 3 percent between 2005 and 2006. 

37 Benefits consultants told us that enrollment in CHDPs is low when offered along side 

other more traditional health benefit options. However, most employers continue to offer 

multiple options, citing concern about workers’ reaction to the full-replacement of more

traditional options. In 2006 we reported that, according to benefits consultants and

insurance carrier representatives, there is growing interest among employers in fully 

replacing their traditional plans with CDHPs, and that one large employer we spoke with 

had done so. See GAO, Consumer-Directed Health Plans: Small but Growing Enrollment 

Fueled by Rising Cost of Health Care Coverage, GAO-06-514 (Washington, D.C.: Apr. 28, 

2006). 

38 According to the Kaiser/HRET Employer Health Benefits 2006 Survey, high-deductible 

health plans with a savings option saw annual premium growth of about 5 percent, versus

about 9-percent growth among HMOs and about 8-percent growth among PPOs. 

39 The National Association of Insurance Commissioners and America’s Health Insurance 

Plans told us that the filing requirements mini-medical plans must follow vary by state, 

making it difficult to track their prevalence. 

40 Mercer National Survey of Employer-Sponsored Health Plans, 2006. 

Page 20 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
indicated that employers are offering mini-medical plans to meet the needs 

of low-wage workers who were previously ineligible for or could not 

afford more comprehensive health benefit options when offered. However, 

one insurance industry representative told us that a small number of 

employers have offered mini-medical plans as a replacement for 

previously offered comprehensive coverage. 

Employers are increasingly offering health and wellness programs as well 

as financial incentives for workers to participate in them because they 

view them as a long-term strategy to control health costs. Table 3 

summarizes the increasing prevalence of some of the most common health 

and wellness programs offered by large employers from 2001 through 

2005. Some employers have also begun offering financial incentives for 

participation in these programs, often as cash bonuses or token rewards, 

and sometimes as discounts on premiums, co-payments, or deductibles. 

The share of large employers offering financial incentives increased from 7 

percent in 2004 to 13 percent in 2005.

41 Benefits consultants told us that 

offering these programs and incentives for participating in them has grown 

in recent years as employers believe they are a cost-effective way to help 

their workers avoid costly and preventable diseases.42

Offered Health and Wellness 

Programs 

 41 According to the 2004 and 2005 Mercer National Surveys of Employer-Sponsored Health 

Plans. In 2005 some of the most commonly offered incentives were for completion of a

health risk assessment, participation in a behavior modification program, and participation 

in a disease management program, with 17 percent, 12 percent, and 7 percent of large 

employers offering these, respectively. Data for 2006 or for years prior to 2004 were not 

available. 

42 Large employers are more likely to offer such programs. However, benefits consultants

told us that they are becoming more popular among small employers as insurance carriers

are beginning to bundle these programs within their plans. According to the 2005 Mercer

survey, 62 percent of large employers rated care management as a top cost management

strategy for the next 5 years. 

Page 21 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 3: Share of Employers with over 500 Workers That Offer Health and Wellness Programs, 2001-2005 

Wellness program 2001 2002 2003 2004 2005

Disease management

a,b 34 42 53 58 67

Behavior modification programsc - - - 21 30

Health risk assessmentd20 24 27 35 46

Health advice linee36 40 48 59 64

Source: Mercer National Survey of Employer Sponsored Health Plans, 2001-2005. 

Note: Data include private- and public-sector employers. Data for 2006 were not available. 

a

A disease management program is a voluntary program offered by health plans for those with certain 

high-risk conditions, such as diabetes, asthma, and congestive heart failure. Patients generally have 

access to a case manager who coordinates physician care and educational materials to help them 

learn how to effectively manage their disease and improve their quality of life. 

b

The numbers for 2001-2003 represent employers who offered diabetes disease management 

programs, which is the most commonly offered type of disease management program. 

c

Behavior modification programs can include smoking cessation programs, onsite fitness facilities, or 

enrollment in health clubs and weight loss programs. Comparable data were not available for 2001-

2003. 

d

A health risk assessment generally includes a questionnaire about health-related behaviors and risk 

factors that generates a report that provides guidelines on ways to reduce the risk of disease.

e

The plan offers on-call clinicians to answer health-related questions and provide medical advice.

Employers Continued to 

Offer Retiree Health 

Benefits, but Shifted More 

of the Costs to Retirees, 

and Some Employers 

Eliminated Health Benefits 

for Future Retirees 

The extent to which employers offered health benefits to retired workers 

and the extent to which retired workers enrolled in these benefits has 

remained relatively steady for the last several years.43 One annual survey 

found that between 2001 and 2006 the share of employers with 200 or 

more workers offering retiree health benefits remained relatively steady,

with about 35 percent offering retiree health benefits in 2006.44 Between 

2001 and 2005, the share of the retired U.S. population covered by 

employer-sponsored health insurance also remained relatively steady, with

about 37 percent covered by such plans in 2005.45

 43 We previously reported that, according to employer surveys, a long-term decline in the

share of employers offering retiree health coverage had leveled off in recent years. See 

GAO, Retiree Health Benefits: Options for Employment-Based Prescription Drug Benefits 

under the Medicare Modernization Act, GAO-05-205 (Washington, D.C.: Feb. 14, 2005). 

44 The Kaiser/HRET Employer Health Benefits 2001 to 2006 Annual Surveys. Survey data 

also show that retiree health benefits are most likely offered by large or unionized firms. 

45 Current Population Survey Data, 2001 to 2005. Data for 2006 were not available. 

Page 22 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Employers have shifted costs to retirees through higher cost-sharing and 

premium contributions. A Kaiser Family Foundation and Hewitt 

Associates (Kaiser/Hewitt) survey of private-sector employers with 1,000 

or more workers that offer retiree health benefits found that in 2003, 2004,

and 2005, many of these employers increased retirees’ coinsurance, copayments, deductibles, and out-of-pocket spending limits (see table 4).46 In 

addition, data from the same survey indicated that in 2005, 42 percent of 

surveyed employers increased premium contributions for retirees age 65 

or older at a rate that was higher than the reported increase in total 

premium costs, suggesting an increase in the share of premiums these 

retirees were required to pay. However, the survey researchers noted that 

this subgroup of employers tended to require retirees to contribute a lower 

share of premiums than other surveyed employers in that year. 

Table 4: Percent of Surveyed Private-Sector Employers with 1,000 or More Workers That Made Cost-Shifting Changes to Their 

Retiree Health Benefits in the Previous Year 

Year surveyed

2003 2004 2005

Increased retiree coinsurance or co-payments a45 34

Increased deductibles 34 37 24

Increased out-of-pocket limits 29 29 19

Source: Kaiser Family Foundation and Hewitt Associates Surveys on Retiree Health Benefits. 

Notes: Data do not include public-sector employers. Comparable data for 2006 or prior to 2003 were 

not available. 

a

In 2003, 37 percent of large employers increased co-payments for physician office visits and 17 

percent increased retirees’ coinsurance.

Although few employers have terminated coverage for current retirees, 

many have done so for future retirees. The Kaiser/Hewitt survey found that 

among surveyed employers, 10, 8, and 12 percent dropped benefits for 

future retirees in 2003, 2004, and 2005, respectively. In contrast to 

employer-sponsored retirement plans, employer-sponsored health plans 

are not subject to ERISA’s vesting rules that require plans to establish 

employee rights in certain benefits based on years of service. Therefore, 

retirees are generally not protected against the termination of health 

benefits unless those benefits are found to have been vested, such as 

through explicit contractual language included in the plan documents by 

 46 Kaiser Family Foundation and Hewitt Associates Survey on Retiree Health Benefits. This

survey has been conducted annually since 2002. 

Page 23 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
employers. Alternatively, employers may elect to include reservation of 

rights clauses in plan documents, which generally permit them to modify 

or terminate health benefits at any time. Terminations are more likely to 

affect new hires and workers who were hired after a specific date. Some 

experts believe the practice of terminating health benefits for future 

retirees will continue, and the Kaiser/Hewitt survey found that 10 percent 

of surveyed employers reported in 2006 that they are either very or 

somewhat likely to terminate retiree health benefits for future retirees in 

the next year. Some experts believe that this trend might be an indication 

that employers view these benefits as less important in attracting and 

retaining high-quality workers than offering health benefits for current 

workers. 

Certain Recent Changes in 

Employer-Sponsored 

Health Benefits May 

Particularly Affect Low 

Income and Less Healthy 

Workers

Loss of health benefits and increased cost-shifting may particularly affect

low-wage and less healthy workers. Decreasing rates of coverage among 

low-wage workers may be an indication that recent changes are 

disproportionately affecting these workers. A recent study found that, 

compared to their higher-wage counterparts, between 2001 and 2005, there 

were steeper declines in the percent of low-wage workers employed by

firms that offered coverage and in the percent that enrolled in coverage 

when offered (see table 5).47 In addition, the Agency for Healthcare 

Research and Quality reported that between 2001 and 2004, enrollment 

among eligible workers employed by large retail firms—which often 

employ low-wage workers—fell, while enrollment among all employers 

held steady.48 Some experts believe that the recent drop in enrollment at 

the lowest income levels may be explained by the increasing cost of 

benefits to workers—such as higher premiums and increased cost-sharing 

requirements—which make them particularly difficult for low-wage 

workers to afford. 

 47 The Kaiser Commission on Medicaid and the Uninsured, Changes in EmployerSponsored Health Insurance Sponsorship, Eligibility, and Participation: 2001-2005

(Washington, D.C. 2006). 

48 According to data from the Agency for Healthcare Research and Quality’s Medical 

Expenditure Panel Survey-Insurance Component, enrollment among workers at large retail 

firms with 1,000 workers or more dropped from about 76 percent in 2001 to about 67

percent in 2004, while enrollment by eligible workers among all large employers held 

steady at about 81 percent over the same period. 

Page 24 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 5: Percentage Point Change in Rates of Employer Sponsorship of Health Benefits, and Worker Eligibility, Enrollment, 

Coverage, and Uninsurance, 2001-2005, by Income Level, Based on the Federal Poverty Level (FPL) 

Income Level 

Less than

 100% FPL 100-199% FPL 200-399% FPL Over 400% FPL

Worker’s employer offers health benefits -5.7a-4.1a-1.2b-1.1a

Worker is eligible (when health benefits are offered) 0.0 -1.9b-1a-0.1

Worker enrolls (when health benefits are offered) -7.2a-3.0a-1.4a-0.3

Worker has any employer-sponsored coverage -6.4a-7.0a-3.9a-0.8b

Worker is uninsured 7.4a5.2a2.6a0.4

Source: Urban Institute analysis of CPS data completed for the Kaiser Commission on Medicaid and the Uninsured, Changes in

Employer-Sponsored Health Insurance Sponsorship, Eligibility, and Participation: 2001 to 2005. 

Notes: The CPS is based on a sample of the civilian non-institutionalized population, which includes

both private- and public-sector workers. The data represented in this table exclude self-employed 

workers, workers under the age of 19 or over 64, and workers who are full-time students under 23. 

a

Indicates that the change between 2001 and 2005 in percent of people is statistically significant at 

the 95 percent confidence level. 

b

Indicates that the change between 2001 and 2005 in percent of people is statistically significant at 

the 90 percent confidence level. 

Similarly, experts are concerned that further cost-shifting of retiree health

benefits may eventually lead some retirees—particularly those with lower 

retirement incomes—to drop this coverage, though the implications of this 

for some Medicare-eligible retirees might be mitigated by the recent 

introduction of Medicare Part D.49 Less healthy workers may be more 

affected by increased cost-shifting than others, because those who are 

high utilizers of health care may spend a greater share of their income on 

the care they receive, and if they are unable to afford it, they may forgo 

needed care.

CDHPs may appeal to some workers, but may not benefit certain low-wage 

workers or those with chronic illnesses who face higher out-of-pocket 

expenses under these plans. We have previously reported, and others have 

also found, that those enrolled in CDHPs tended to have higher incomes 

 49 Medicare Part D provides a voluntary prescription drug benefit to certain eligible 

Medicare beneficiaries. It was authorized by the Medicare Prescription Drug, Improvement,

and Modernization Act of 2003, Pub. L. 108-173, and became available to beneficiaries in 

January 2006. Some retirees may have relied on employer-sponsored health benefits 

primarily to alleviate the cost of prescription drugs; therefore Part D might fully or partially 

replace lost employer-sponsored health benefits for some retirees. 

Page 25 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
than enrollees in other plans.50 While lower premiums might make these 

plans more affordable for some and might encourage employers who 

previously did not offer health benefits to offer a CDHP, the increased 

financial risk associated with higher deductibles and cost-sharing may 

particularly affect low-income workers who may be less able to afford the 

upfront costs of care. Low-income workers enrolled in HSA-based plans 

may also be less likely to build their savings account balances because 

they have less disposable income and their tax benefit from making 

contributions would be small.51 This may be particularly true for those 

whose employers do not make contributions to their accounts. In addition,

some early research indicates that CDHP enrollees may spend more of 

their annual incomes on health-related expenses than enrollees in other 

plan types.52 Those with high health care needs, such as those with a 

chronic illness, might be particularly affected by these plans as they may 

be more likely to use care and less able to accrue savings in their accounts 

from year to year. While some studies have found that CDHP enrollees 

were more likely to exhibit cost-conscious behavior than those in 

traditional insurance plans, one study found that they were also more 

likely to delay or skip needed medical care than were those with less costsharing, and this was more pronounced among those with low incomes.53

In addition, one study found that CDHP enrollees believed they did not 

have the information they needed to make wise decisions about the cost 

 50 See GAO, Federal Employees Health Benefits Program: First-Year Experience with

High-Deductible Health Plans and Health Savings Accounts, GAO-06-271 (Washington, 

D.C.: Jan. 31, 2006); and GAO, Consumer-Directed Health Plans: Early Enrollee

Experiences with Health Savings Accounts and Eligible Health Plans, GAO-06-798 

(Washington, D.C.: Aug. 9, 2006). 

51 We previously reported that 51 percent of tax filers who reported an HSA contribution to

the IRS in 2004 had an adjusted gross income of $75,000 or more, compared to 18 percent

of all tax filers under age 65 (GAO-06-798). 

52 Employee Benefit Research Institute, Early Experience with High-Deductible and

Consumer-Driven Health Plans: Findings from the EBRI/Commonwealth Fund 

Consumerism in Health Care Survey, Issue Brief No. 288 (Washington, D.C.: December

2005). 

53 Ibid. Other studies that have looked at some of these issues include: The Kaiser Family 

Foundation, National Survey of Enrollees in Consumer-Directed Health Plans

(Washington, D.C.: November 2006) and McKinsey & Company, Consumer-Directed Health

Plan Report—Early Evidence Is Promising (Pittsburgh, Pa.: June 2005). Both the Kaiser

survey and the McKinsey study reported that CDHP enrollees appeared to be more cost 

conscious than those in traditional types of health plans. The Kaiser study also found that 

CDHP enrollees are more likely to skip needed medical care. 

Page 26 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
and quality of health care services.54 Workers whose employers only offer 

CDHPs would be particularly affected by these potential implications. 

Mini-medical plans may benefit certain low-wage workers who would have

no coverage in the absence of such a plan, but health policy experts and 

industry representatives we spoke to expressed several concerns about 

the adequacy of these plans. Proponents of mini-medical plans believe 

they will extend benefits to workers who were not previously insured 

either because they could not afford coverage or it was not offered to 

them. If enrolled in mini-medical plans, these workers may be more likely 

to obtain routine and preventive care, which may lead to better health 

outcomes and lower overall health expenditures. Representatives we 

spoke to from a health policy research organization, a benefits consulting 

firm, and a labor group generally agreed that these plans could provide 

access to some health coverage for individuals who were previously 

uninsured. However, they also expressed concern that the limitations of 

these plans may be too restrictive. For example, an annual coverage cap of

$20,000 could be exceeded by a single hospitalization. In addition, there is

concern that the limitations of these plans may not be clearly 

communicated to enrollees and that those who do not understand the 

coverage limitations may find themselves lacking coverage they need.55 In 

addition, some labor and consumer advocacy groups are concerned that

mini-medical plans will lead to reduced benefits for some workers, such as 

those whose comprehensive benefits are fully replaced by mini-medical 

plans. 

Some workers’ rights and consumer advocacy groups have expressed 

concerns about the privacy of workers’ health information gathered 

through wellness programs and that employers might use these programs 

to attract or retain the healthiest workers. The privacy rule issued under 

the Health Insurance Portability and Accountability Act of 1996 (HIPAA) 

places limits on health plans’ use or disclosure of individually identifiable 

health information. However employers not acting as a health plan are not 

 54 The Kaiser Family Foundation, National Survey of Enrollees in Consumer-Directed

Health Plans (Washington, D.C.: November 2006). 

55 For example, in October 2006 a consumer advocacy group, Citizens for Economic 

Opportunity, filed a lawsuit in Connecticut against Aetna, its subsidiary Strategic 

Resources Company, and the state Department of Insurance claiming that consumers were 

misled into thinking their insurance coverage was more comprehensive than it was.

Citizens for Economic Opportunity v. Strategic Resources Company, et al., CV-06-

4026380-S (Conn. Super. Ct. filed Oct. 30, 2006). 

Page 27 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
covered by the privacy rule. Concerning employers’ use of health 

information obtained through a wellness program, HIPAA generally 

protects individuals from discrimination related to health coverage and

benefits based on health status factors, such as their medical condition or

history. Regulations issued by DOL, the Department of Health and Human 

Services, and the Internal Revenue Service in 2006 provide that employers 

may establish wellness programs without violating the prohibition against 

discrimination, provided the programs meet certain guidelines.56 For 

example, if program rewards are given to participants who meet a health

standard, such as achieving a cholesterol count below a set level, then a 

reasonable alternative standard must be made available to certain 

individuals, such as those who have a medical condition that makes it 

unreasonably difficult for them to meet the general standard.

The trends in employer-sponsored pension benefits that have emerged 

over the last several decades have continued. Participation in DB plans 

continues to fall as employers continue to terminate existing plans or 

freeze benefits for active workers. Some employers choosing to retain 

their DB plans have converted them to hybrid plans that share 

characteristics of both DB and DC plans, a trend that may increase with 

the passage of the PPA. Conversely, participation in DC plans continues to 

rise as employers increase their offerings of these plans. In addition, some 

workers participate in both types of plans. Benefits experts stated that 

employers’ decisions regarding the retirement plans they offer reflect their 

attempts to control retirement benefit costs and make them more 

predictable. Employers’ decisions affect workers’ roles in retirement 

planning. With DC plans, workers assume the responsibilities and risks for 

managing their retirement accounts; however, a growing number of 

employers are attempting to increase participation rates and retirement 

savings in DC plans by automatically enrolling workers, escalating worker 

contributions and offering investment funds that require less worker 

management. 

The Ongoing Shift to 

Different Types of 

Employer-Sponsored 

Retirement Plans 

Continues to Affect 

Both Employers’ and 

Workers’ Roles in 

Retirement Planning 

 56 Proposed regulations were issued in 2001, and the agencies subsequently treated 

compliance with the proposed regulations as evidence of good faith compliance with 

HIPAA’s statutory nondiscrimination requirements. The final regulations took effect on 

February 12, 2007, and will apply for plan years beginning on or after July 1, 2007. 

Nondiscrimination and Wellness Programs in Health Coverage in the Group Market, 71 

Fed. Reg. 75,014 (December 13, 2006) (to be codified at 26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, 

and 45 C.F.R. pt. 146). 

Page 28 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
DOL analysis of DB plans shows the number of active participants and 

number of plans has decreased over the past several decades and recent 

data show that the trend is continuing. The number of active participants

in DB plans can be an important indicator of the long-term decline of the 

DB system.57 DOL analysis of Form 5500 data shows that the number of DB 

plans and the number of active participants in these plans have decreased 

since 1985 (see table 6).

Participation in Traditional 

Defined Benefit Plans 

Decreased as Some 

Employers Terminated or 

Froze Plans, and Others 

Converted to Cash Balance 

Plans 

Table 6: Employer-Sponsored Defined Benefit Plans and Active Participants, 1985, 1999, and 2003

1985 1999 2003

Change between

 1999 and 2003

Employer plansa170,172 49,895 47,036 -2,859

Active participants 28.9 million 22.6 million 21.3 million -1.3 million

Source: DOL analysis of Form 5500 filings for private-sector employers. 

a

Defined benefit plans subject to ERISA. 

More recently, data published in the National Compensation Survey shows 

that the percentage of private-sector workers with DB plans has remained 

steady around 20 percent between 2003 and 2006. 

A number of active workers are participants in DB plans that have been 

“frozen.” Pension plans can be frozen in several ways. They can be closed

to new entrants such that only those in the plan at a specific point in time 

continue to accrue benefits. Plans can be frozen for some, but not all 

participants, based on age, tenure, job classification, or location. Under a 

hard freeze, no participant accrues any additional benefits regardless of 

job tenure or compensation growth. Under a soft freeze benefits are 

generally not increased for additional tenure but are increased for 

compensation growth. Form 5500 data on DB plan freezes is available for 

only 2003 and shows that 9.4 percent of the single-employer DB pension 

plans insured by the PBGC were hard-frozen.58 Most of these plans were 

 57 The absolute number of participants (retirees, separated vested participants, and active 

participants) has increased over time. DOL 5500 reports show DB coverage increasing from 

39.7 million in 1985 to 42.2 million in 2003. From 1999 to 2003, the number of individuals 

covered by DB plans increased from 41.4 million to 42.2 million. One reason for the longterm increase in number of covered persons is that retirees are living longer. 

58 The Form 5500 does not collect information that identifies whether plans were subject to 

a soft freeze. 

Page 29 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
small plans with fewer than 100 participants, representing about 2.5 

percent of all participants in PBGC-insured DB plans. Benefit consultants, 

benefits researchers, and others stated that employers will continue to 

freeze or terminate DB plans in response to financial distress, insufficient 

plan funding, and other considerations. Surveys also report that additional

employers are either considering or planning to freeze or terminate their 

DB plans. 

Some employers that have retained DB plans have converted them from 

traditional plans to hybrid plans, such as cash balance plans. Form 5500 

annual reports show that cash balance plans (as a percentage of all DB 

plans) increased from 2.7 percent in 1999 to 4.9 percent in 2003. Active

participants in cash balance plans increased from 15.7 percent of all active 

participants to 22.9 percent over the same period. Some consider cash 

balance plans controversial because of the effect they may have on 

pension benefits of workers of different ages and years of service.59 Some 

court decisions have found certain cash balance plans to be age 

discriminatory.60 This has created some uncertainty about the legality of 

cash balance plans and their design features that may have affected some 

employers’ decisions whether to convert to such plans. The PPA made 

changes intended to remove legal uncertainties, which may lead to 

additional conversions to cash balance plans.

 59 See GAO, Private Pensions: Implications of Conversions to Cash Balance Plans, 

GAO/HEHS-00-185 (Washington, D.C.: Sept. 29, 2000). 

60 See, e.g., In re Citigroup Pension Plan ERISA Litigation, --F.Supp.2d--, 2006 WL

3770504 (S.D.N.Y. 2006)(holding that the benefit accrual formula in Citigroup’s cash

balance plan violates ERISA’s prohibition against age discrimination); and In re J.P. 

Morgan Chase Cash Balance Litigation, 460 F.Supp.2d 479 (S.D.N.Y. 2006)(holding that

J.P. Morgan Chase’s cash balance plan violates ERISA’s age discrimination provision). But

see Register v. PNC Financial Services Group, 477 F.3d 56 (3rd Cir. 2007)(affirming a 

lower court decision and holding that PNC’s cash balance plan does not discriminate 

against older employees on the basis of age); Cooper v. IBM Personal Pension Plan and

IBM Corporation, 457 F.3d 636 (7th Cir. 2006)(reversing a lower court decision and holding

that IBM’s cash balance plan does not violate ERISA’s age discrimination provision); and

Finley v. Dun & Bradstreet Corp., --F.Supp.2d--, 2007 WL 196753 (D.N.J. 2007)(holding the 

Dun & Bradstreet’s cash balance plan does not violate ERISA’s age discrimination 

provision).

Page 30 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
The number of DC plans and the number of active participants in such 

plans have increased over the past several decades, continuing established 

trends. DOL analysis of Form 5500 data shows that the number of DC 

plans and active participants have increased since 1985 (see table 7). While

the number of participants continued to increase during a more recent 5-

year period, the number of plans decreased, largely as a result of a drop in 

the number of reported plans in 2003.61

Participation in Defined 

Contribution Plans 

Continues to Increase as 

More Employers Offer 

Plans 

Table 7: Employer-Sponsored Defined Contribution Plans and Active Participants, 1985, 1999, and 2003

1985 1999 2003

Change between

 1999 and 2003

Employer plans 461,963 683,100 652,976 -30,124

Active participants 33.2 million 50.4 million 51.8 million 1.4 million

Source: DOL analysis of Form 5500 filings for private-sector employers. 

Notes: Because employers submit Form 5500 data for each retirement plan, the aggregate number of

plans includes duplicate counts of employers when they offer more than one plan. Likewise, 

aggregate employee data include duplicate counts when employees participate in more than one

plan. Within the 5-year period, the highest number of participants was in 2002 at 52.9 million, which 

decreased by approximately 1 million to 51.8 million in 2003. 

DOL officials and industry publications stated that the decrease in DC 

plans does not necessarily reflect a decrease in the number of employers 

offering DC plans or the number of workers participating in DC plans. 

Employers often offer several types of plans, and employers can drop plan

offerings while continuing to offer other types of plans. More recent data

from the National Compensation Survey shows an increase in the 

percentage of private-sector workers with DC plans—increasing from 40 

percent in 2003 to 43 percent in 2006. 

 61 Form 5500 data show that the decrease in the number of plans is primarily the result of a 

decline in one type of plan—money purchase plans. The primary advantage of the money

purchase plan over other types of DC plans was that it allowed higher contribution

amounts; however, the Economic Growth and Tax Relief Reconciliation Act of 2001, raised 

the maximum contribution limits on some other types of DC plans.

Page 31 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Since the mid 1980s, a steady percentage of workers have participated in

both DB and DC plans sponsored by their employers.62 Employers that 

offer a combination of a basic DB annuity and a DC plan can guarantee a 

certain minimum level of retirement benefits, while workers can choose 

the extent to which they participate in supplementary plans to increase 

their potential benefits upon retirement. Figure 3 shows the share of the 

private workforce that participated in some form of employer-sponsored 

retirement plan through 1999, including those that participated in both DB 

and DC plans. 

Some Workers Participate 

in Both Defined Benefit 

and Defined Contribution 

Plans 

Figure 3: Share of Workforce Participating in Employer-Sponsored Retirement 

Plans, by Type of Plan 1985-1999 

0

10

20

30

40

50

60

70

80

90

100

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Percentage of workforce

Source: DOL analysis of Form 5500 for private-sector employers. The last year in which DOL performed this analysis was 1999.

Year

Not participating

Defined contribution only

Both defined benefit and defined contribution

Defined benefit only

Note: “Not participating” includes those workers that choose not to participate in such plans, those 

that are not eligible to participate, and those whose employers do not offer retirement plans. 

 62 These workers are also included in previous sections on DB plans and DC plans.

Page 32 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
The percentage of the private-sector workforce participating in both types

of plans has generally remained at about 15 percent since the mid-1980s. 

Although DOL stopped conducting its analysis of dual participation with 

the 1999 Form 5500 filings, others who have analyzed the data continue to 

show similar levels of dual participation through 2005. 

Employers’ Retirement 

Plan Decisions Reflect 

Their Preference for 

Retirement Benefit Cost 

Control and Predictability 

While citing employer interest in obtaining greater control over benefit 

costs, benefits experts expressed various views on the relative costs 

associated with DB and DC plans. Several experts stated that companies 

can save money by changing from DB to DC plans; however, they added 

that it is difficult for employers to compare the relative costs of providing 

these plans because of the differences in the ways each type of plan is 

funded.63 Employers’ DB costs are based upon the amount of funding 

necessary to provide pension payments to current and future retirees and 

administrative costs, whereas DC costs are associated with employers’ 

current contributions and administrative costs.64 Nonetheless, several large

companies that froze their DB plans and enhanced existing DC plans 

publicly stated that the actions would save their companies money.65

Benefits experts also stated that employers are interested in making their 

benefits costs more predictable. According to the benefit consultants we 

interviewed, DB plan funding is subject to cost volatility from a variety of 

factors, including financial market conditions, investment performance, 

regulation, accounting requirements and changes in plan provisions. For 

example, DB plan funding requirements are affected by changes in interest 

 63 In addition to other factors, experts stated that the age of the workforce affects employer 

funding for plans. 

64 GAO has previously reported that, while plan sponsors still pay some of the major types 

of fees in 401(k) plans, such as investment and recordkeeping fees, these fees are 

increasingly being paid by participants, see GAO, Private Pensions: Changes Needed to 

Provide 401(k) Plan Participants and the Department of Labor Better Information on

Fees, GAO-07-21 (Washington, D.C.: Nov. 16, 2006). 

65 For example, IBM reported that freezing its DB plan, while increasing 401(k) benefits, 

would save the company $2.5 billion to $3 billion for the period 2006-2010. Hewlett Packard 

announced that it was planning to take several cost-cutting actions, such as freezing its 

pension benefits, and that savings from this and other cost-cutting measures would result 

in savings of $1.9 billion annually. Verizon Communications Inc. announced that it was 

freezing DB plans for active management employees and changing management employees’ 

retiree medical benefits to save approximately $3 billion over the next 10 years. 

Page 33 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
rates and changes in the value of plan assets.66 In addition to interest rate 

and investment risks, employers are subject to legislative and accounting 

risk. For example, the PPA increases the required funding levels for DB 

plans and a new Financial Accounting Standards Board (FASB) rule 

requires companies to include pension obligations in their balance sheets, 

rather than reporting obligations in footnotes to a financial statement.67

Some benefits experts indicated that the rule could have a negative effect 

on companies’ financial statements. A survey of employers found that 82 

percent of employers who froze or terminated their DB plans cited cost 

volatility as a significant factor.68 In contrast to DB plans, benefits 

consultants stated that employers prefer the predictability of DC plan 

contributions that are based on established contribution rates or are tied 

to company profitability. They stated that employers seldom change their 

employee contribution match rates, while profit sharing contributions vary

with the company’s performance. 

Despite their interest in greater benefit cost control and predictability, 

experts reported that many employers were not planning to make changes

to their benefit plans. In fact, according to an employer survey, the 

majority of companies with DB plans do not expect to make changes to 

their plans.69 Likewise, experts stated that employers with DC plans have

not generally made changes to the level of their DC plan contributions in 

recent years; however, contributions tied to profitability have resulted in 

some companies changing the amounts of annual contributions. 

Employer Decisions May 

Affect Worker Roles in 

Retirement Planning 

To further encourage worker participation and increased retirement 

savings, a growing number of employers offering DC plans are 

automatically enrolling workers and investing retirement assets on their 

 66 Some financial experts have suggested that employers can reduce volatility in funding DB

plans using methods such as investing in asset types that have risks that match their

pension liability risks.

67 For public companies, FASB rule Statement of Financial Accounting Standards 158,

Employers’ Accounting for DB Pension and Other Postretirement Plans, becomes

effective as of the end of the fiscal year after December 15, 2006, and as of the end of the

fiscal year after June 15, 2007, for non-public companies. 

68 Other top reasons given by employers were cost (64 percent), not sufficiently valued or 

appreciated by workers (31 percent), and impact of funding rule changes (27 percent). 

Hewitt Associates LLC Survey Findings: Hot Topics in Retirement, 2006. 

69 Hewitt Associates LLC Survey Findings: Hot Topics in Retirement, 2006. 

Page 34 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
behalf. Most DC plans require workers to affirmatively enroll and elect 

contribution levels, but a growing number of plans automatically enroll 

workers and escalate the amount of the worker’s contributions on a 

recurring basis.70 An employer survey found that 16.9 percent of 

responding companies reported that their plans offered automatic 

enrollment in 2005, up from 8.4 percent in 2003.71 The survey also found 

that automatic enrollment is more common in large plans than small 

plans—the survey indicated that in 2005, 34.3 percent of the largest plans 

(i.e., greater than 5,000 participants) offered automatic enrollment while 

only 3.5 percent of the smallest plans (i.e., less than 50 participants) 

offered the feature. Benefits experts stated that most individuals are 

passive in making investment decisions and that automatic enrollment 

features increase active participation. They stated that 40 to 60 percent of

active workers participate in plans when they must affirmatively join the 

plan, while plans offering automatic enrollment can increase participation 

rates to 80 to 90 percent. Minority, low-wage, and younger workers may 

benefit more with automatic enrollment because they tend to participate

less than other groups of workers. However, it is unclear whether workers 

will continue to participate after being automatically enrolled, since many 

report that they cannot afford to participate or do not want to tie up their 

money. Some experts are concerned that employers may choose low-risk 

default investments—which may provide inadequate returns—to avoid 

fiduciary liability that might be related to higher-risk investments. The PPA 

directed the Department of Labor to issue regulations providing employers 

with guidance on developing appropriate default investments and 

employers’ fiduciary responsibilities.72 Another technique employers are 

using in an attempt to increase workers’ retirement savings is 

automatically escalating workers’ 401(k) contributions. An employer 

 70 Employers in some states have not chosen to use automatic enrollment because of 

concerns the practice was not legal under state laws prohibiting withholding of workers 

wages. The PPA preempts such state laws when the employer meets certain conditions. 

71 Profit Sharing/401k Council of America: 49th Annual Survey of Profit Sharing and 

401(k) Plans. 

72 Under rules proposed by DOL, a worker who participates in a DC plan will be deemed to 

have exercised control over assets in his or her account if, in the absence of investment 

directions from the participant, the plan invests in a qualified default investment 

alternative, such as a life-cycle or targeted retirement date fund. A fiduciary of a plan that 

complies with this proposed regulation, including requirements related to providing 

workers adequate notice of default investments, will not be liable for any loss, or by reason 

of any breach that occurs as a result of such investments. Default Investment Alternatives 

Under Participant Directed Individual Account Plans, 71 Fed. Reg. 56,806 (proposed Sept. 

27, 2006)(to be codified at 29 C.F.R. pt. 2550). 

Page 35 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
survey found that, in 2003, only 1 percent of plans offered automatic 

escalation while 9 percent offered this feature in 2005.

73

Benefits experts are concerned about workers’ retirement investment 

performance because workers do not always choose appropriate 

investments. For example, experts stated that workers can be too 

aggressive or too conservative in their investment choices, resulting in 

lower plan balances for retirement. Therefore, some employers are 

offering different types of funds, such as life-cycle funds, to help workers 

manage their investments.74 An employer survey showed that, in 2004, 39.3

percent of participants offered life-cycle funds elected to invest some or 

all of their balances in these funds, up from 37.1 percent in 2003.75 Some 

employers also provide financial education and investment advice with the 

objective of helping workers invest more wisely. An employer survey 

indicated that over 47 percent of plans offered investment advice such as 

one-on-one counseling, Internet-based information and tools, and 

telephone hotlines.76 However, some experts stated that retirement studies 

have found that workers have little financial knowledge, despite the 

employer-provided courses and seminars. Other experts stated, however, 

that studies regarding the effectiveness of investment advice are 

inconclusive. Some employers choose not to offer investment advice due 

to concerns of fiduciary liability; however, the PPA provides additional 

protections for employers subject to certain conditions. 

Employers’ decisions to increasingly choose DC plans over DB plans 

require workers to make several key decisions about their retirement 

planning. With DB plans, employers enroll all eligible workers and are 

responsible for funding and managing investments to provide them with 

pensions upon retirement. With DC plans, workers have generally been 

responsible to elect to participate, determine the amount of their 

contributions, and choose and manage their retirement. However, if 

workers participate in DC plans through employers’ automatic enrollment, 

 73 Hewitt Associates LLC, Trends and Experience in 401(k) Plans, 2005. 

74 A highly diversified mutual fund that may contain a mix of stock, bonds, and cash,

designed to remain appropriate for investors in terms of risk from their early career, 

through middle-age, and to retirement. 

75 Hewitt Associates LLC research report. 

76 Profit Sharing/401k Council of America: 49th Annual Survey of Profit Sharing and 

401(k) Plans. 

Page 36 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
automatic escalation, and default investments, then the workers’ role 

through retirement is more similar to that under a DB plan.77

Workforce restructuring through the use of contingent workers may affect

workers’ benefits.78 Contingent workers are not offered and do not 

participate in employer-provided pension and health care benefits to the 

same extent as full-time workers. The use of contingent workers can 

reduce the costs associated with providing these benefits for employers; 

however, benefits experts presented mixed views on whether employers 

have been changing the composition of their workforces for this reason. 

Workforce 

Restructuring Can 

Result in Different 

Benefit Arrangements 

for Workers and May 

Affect Employer 

Benefit Costs 

Fewer Contingent Workers 

Participate in EmployerSponsored Benefit Plans, 

While Participation by 

Part-Time Workers Has 

Remained Stable

As we have previously reported, contingent workers do not participate in

pension and health care benefits to the same extent as full-time workers.

We consider contingent workers to include agency temporary workers, 

contract company workers, day laborers, direct hire temps, independent

contractors, on-call workers, self-employed, and part-time workers; 

however, our analysis does not include self-employed or most independent 

contractors, because they do not have employers. Employers are 

permitted to exclude certain contingent workers from certain benefit 

plans, which may occur when employers think it is impractical or too 

costly to include them. Our analysis of BLS data shows that the proportion 

of contingent workers offered pension and health care benefits is much 

less than that for full-time workers (see fig. 4). 

 77 At retirement, DB plans must offer participants an annuity, which is the normal form of 

benefit payment, but can also offer participants a lump-sum payment. DC plans are not

required to provide an annuity option to participants and usually provide benefits in the 

form of a lump-sum distribution. Workers may roll-over or transfer lump-sum distributions

into certain retirement plans free of taxes. 

78 Other types of workforce restructuring, such as offshoring, plant relocation, divestures of

corporate divisions or subsidiaries, increasing overtime work, alternative scheduling of 

work, etc., are not addressed in this report, because they were not generally raised by

benefit experts as being current practices affecting employer benefit plans. 

Page 37 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Figure 4: Percentage of Full-time and Contingent Workers Offered EmployerProvided Pension and Health Care Benefits, 2005 

0

10

20

30

40

50

60

70

80

90

100

Pension Health care

 Percentage of full-time and contingent workers

Source: GAO analysis of the BLS Current Population Survey, Contingent Work Supplement, February 2005.

Benefit offered by employer

Full-time

Contingent

76

38

81

38

Notes: Data include private- and public-sector workers. Workers in the self-employed category and 

most workers in the independent contractor category do not have employers; therefore, they are not 

included in this figure. 

Also, significant differences exist in pension and health care participation 

rates between full-time and contingent workers. Our analysis of BLS data 

shows that in 2005, contingent workers’ participation in employerprovided pension and health care plans is significantly lower than that of 

full-time workers (see fig. 5). When considering whether workers 

participate in benefits from any source—such as a spouse or governmentsponsored plan—percentages increase and the difference between fulltime and contingent workers narrows. For example, the percentage of 

workers with health care from any source is 87 percent for full-time 

workers and 73 percent for contingent workers.79

 79 See GAO, Employment Arrangements: Improved Outreach Could Help Ensure Proper 

Worker Classification, GAO-06-656 (Washington, D.C.: July 11, 2006). 

Page 38 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Figure 5: Percentage of Full-time and Contingent Workers Participating in 

Employer-Provided Pension and Health Care Benefits, 2005 

0

10

20

30

40

50

60

70

80

90

100

Pension Health care

 Percentage of full-time and contingent workers

Source: GAO analysis of the BLS Current Population Survey, Contingent Work Supplement, February 2005.

Benefit participation with employer

Full-time

Contingent

64

17

72

13

Note: Data include private- and public-sector workers. Workers in the self-employed category and 

most workers in the independent contractor category do not have employers; therefore, they are not 

included in this figure. 

Our analysis of BLS data shows that pension and health care participation 

rates for part-time workers—the largest component of contingent 

workers80—have remained relatively constant between 1999 and 2005 (see

table 8).81

 80 Part-time worker pension and health care participation rates are higher than the overall 

rates for contingent workers. 

81 Other analyses also show little change in part-time worker participation in benefits

during similar time periods from the BLS National Compensation Survey, Agency for 

HealthCare and Quality’s Medical Expenditure Panel Survey, and The Iowa Policy Project’s 

analysis of the BLS Contingent Work Supplement. 

Page 39 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 8: Percentage of Part-time Workers Participating in Employer-Provided 

Pension and Health Care Benefits, 1999 and 2005 

1999 2005

Pension participation with employer 21 23

Health care participation with employer 17 19

Source: GAO analysis of data from the BLS Current Population Survey, Contingent Work Supplements, February 1999 and 2005. 

Note: Data include private- and public-sector workers. 

Some types of contingent workers do not have a specific single employer, 

such as the self-employed and most independent contractors, so they do 

not receive employer-sponsored benefits.82 Such workers may be able to 

factor in costs for these benefits in their fees that they charge their clients. 

Because the self-employed and most independent contractors do not have

employers, they are more likely to participate in other types of tax 

deferred retirement accounts (such as IRAs and Keogh plans).

83 Our 

analysis found that in 2005, 45 percent of self-employed workers and 42 

percent of independent contractors reported having such accounts, 

compared to 16 percent of full-time workers. Such workers may be able to 

deduct the amount paid for health insurance as an adjustment to income 

in determining their federal tax liability. 

Employers’ Use of 

Contingent Workers Can 

Affect Benefit Costs, but 

the Extent to Which This 

Leads Employers to Use 

Contingent Workers Is 

Uncertain 

We previously reported that employers’ retirement and health care benefit 

costs vary considerably between full-time and part-time workers. These 

differences in costs may be attributable to several factors, such as the 

extent to which employers offer benefits to full-time and part-time 

workers, worker participation in employer-sponsored benefit plans, and 

differences in the plans offered to each group (see table 9). 

 82 Some workers may be misclassified as independent contractors when they should be 

classified as employees, thus affecting their eligibility to participate in employers benefit 

plans, see GAO, Employment Arrangements: Improved Outreach Could Help Ensure

Proper Worker Classification, GAO-06-656 (Washington, D.C.: July 11, 2006). 

83 Keogh plans are retirement plans for self-employed workers, authorized by the SelfEmployed Individuals Tax Retirement Act of 1962, Pub. L. 87-792. 

Page 40 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Table 9: Hourly Cost of Retirement and Health Care Benefits for Full-time and Parttime Workers, 2005 

Full-time Part-time

Retirement and savings $1.07 $0.18

Health insurance 1.92 0.49

Source: GAO analysis of Bureau of Labor Statistics National Compensation Survey data. 

Note: Data include private-sector employers. 

Some benefits experts reported that while some employers choosing to 

restructure their workforces may be affecting the total amount that they 

spend on benefits, the decision to restructure their workforces is made for 

other strategic reasons. These strategic reasons may be to more efficiently 

meet changing production and service needs in order to be competitive 

both domestically and internationally. For example, an employer may hire 

the number of full-time workers it knows it will need at all times and then 

supplement that worker base with contingent workers depending on 

production demands—instead of a continuous cycle of lay-offs and new 

hiring. Other benefit experts reported that employers are restructuring 

their workforces to reduce benefits costs by reducing their numbers of 

full-time workers. To reduce benefit costs, some employers are employing 

only a core of full-time workers in key positions to whom they provide 

benefits, while other work is outsourced or done by workers who are not 

included in the employers’ benefit plans. 

The responsibilities of employers and workers in financing health and 

retirement benefits continue to evolve in an increasingly competitive 

global market. Employers have played a primary role in the financing of 

health benefits and retirement income for many workers for several 

decades; however, many are finding it increasingly challenging to provide 

these benefits. In responding to financial stresses, employers have 

changed the designs of both health and retirement benefits and shifted 

more of the cost, risk, and control to workers—reducing employers’ 

responsibilities while increasing workers’ responsibilities. These types of 

changes began with retirement benefits—with the shift from DB to DC 

plans—and were followed by similar changes to health benefits years 

later—such as through increased cost sharing and the more recent 

introduction of CDHPs. While DC plans have been widely adopted and 

their prevalence continues to grow, it is too early to tell if the shifting of 

health care costs and risks from employers to workers is sustainable or if 

CDHPs will take root in the same manner as DC plans. 

Concluding 

Observations 

Page 41 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Shifting some of the cost, risk, and control of health and retirement 

benefits from employers to workers, as well as the responsibility for 

managing them may help employers control their benefits costs and 

provide greater benefit choices for some workers, but such changes can 

also have other consequences. Workers participating in employersponsored benefits may not have or may perceive that they do not have 

sufficient financial resources, information, or knowledge to assume more 

of the costs and responsibility of these benefits. For example, a recent 

decline in health plan participation among lower-income workers may 

indicate that these workers are no longer able to afford the higher costs of 

these benefits. Similarly, although DC plans have grown in prevalence, 

recent employer changes to try to increase workers’ participation and 

workers’ investment returns—such as through automatically enrolling 

workers and offering life-cycle investment funds—may be an indication of

growing concerns about workers’ ability to adequately prepare financially 

for retirement when they are responsible for their participation in and 

management of these plans. The challenges workers face in assuming 

greater cost, risk, and control of their health and retirement benefits can 

make it more difficult for low-wage earners to afford health care coverage

and save for retirement. Although these challenges may weigh most 

heavily on the less wealthy and less healthy segments of the workforce, 

they affect a broad spectrum of the American workforce and could prove 

challenging to many. 

Employers, individuals, and government share the responsibility of finding 

long-term solutions with the goal of ensuring that individuals of varying 

economic and health backgrounds are prepared for their health and 

retirement needs. For employers this will involve balancing their need to 

attract quality workers and maintain a workforce that is healthy and 

prepared for retirement, all within their fiscal constraints. This may mean 

that solutions will differ for employers depending on factors such as their 

size, industry, profitability, and competition for labor. For individuals, this 

will involve balancing their demand for health care coverage and 

retirement savings vehicles with their ability to pay for them. It is 

becoming increasingly important for individuals to become actively 

engaged in planning for their health and retirement, and their decisions on 

these matters will be shaped in part by their income levels and health 

status. For government, this will involve balancing the need to promote 

both a healthy population and a healthy economy within its own budget 

constraints while facing the challenges posed by an aging population. 

Page 42 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
We provided a draft of this report to DOL. DOL did not provide written 

comments, but did provide technical comments, which we incorporated as 

appropriate.

Agency Comments 

As arranged with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

date of this report. At that time, we will send copies of this report to the 

Secretary of Labor, relevant congressional committees, and other 

interested parties. We will also make copies available to others upon 

request. In addition, this report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please call

Barbara D. Bovbjerg at (202) 512-7215 or John E. Dicken at (202) 512-7119. 

Contact points for our offices at Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made 

major contributions to this report are listed in appendix II. 

Sincerely yours, 

Barbara D. Bovbjerg 

Director, Education, Workforce, 

 and Income Security Issues 

John E. Dicken 

Director, Health Care Issues 

Page 43 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Appendix I: De

in Our

scription of Survey Data Used 

Analysis

Page 44 GAO-07-355

Appendix I: Description of Survey Data Used 

in Our Analysis 

To measure trends in employer-sponsored benefits, we relied primarily on 

data from three private-sector surveys of employer-sponsored health 

benefits and two federal surveys that address workforce characteristics 

and benefits costs and participation rates. 

Private Surveys of 

Employer-Sponsored 

Health Benefits 

We relied on data from two annual surveys of employer-sponsored health

benefit plans conducted by private entities,1

 and one private-sector survey 

on retiree health benefits. For each of these surveys, we reviewed the 

survey instruments and discussed the data’s reliability with the sponsors’ 

researchers and determined that the data were sufficiently reliable for our

purposes. 

Kaiser Family Foundation and Health Research and Educational Trust 

Employer Health Benefits Annual Survey (Kaiser/HRET): 

• Since 1999, Kaiser/HRET has surveyed a sample of employers each 

year through telephone interviews with human resource and benefits 

managers and published the results in its annual report—Employer 

Health Benefits.2

 Kaiser/HRET selects a random sample from a Dun & 

Bradstreet list of private and public-sector employers with three or 

more employees, stratified by industry and employer size. It attempts 

to repeat interviews with some of the same employers that responded 

in prior years. For the most recently completed annual survey, 

conducted from January to May 2006, 2,122 employers completed the 

full survey, yielding a 48-percent response rate. By using statistical 

weights, Kaiser/HRET is able to project its results nationwide. 

Kaiser/HRET uses the following definitions for employer size: (1) 

small—3 to 199 employees—and (2) large—200 and more employees. 

In some cases, Kaiser/HRET reported information for additional 

categories of small and large employer sizes. We used the Kaiser/HRET 

surveys to report on the changes in employer-sponsored health 

benefits. 

 1

 Year-to-year fluctuations or gradual changes in these employer benefit survey results need

to be interpreted with caution. These surveys are based on random samples designed to be

representative of a broader employer population and are used widely but may not have the 

precision needed to distinguish small changes in coverage from year to year because of 

their response rates and the number of firms surveyed. 

2

 Kaiser/HRET has been conducting the survey of small and large employers since 1999. 

From 1991 through 1998, KPMG Consulting, Inc., conducted the survey using the same 

instrument. 

Employer-Sponsored Health and Retirement Benefits
Appendix I: Description of Survey Data Used 

in Our Analysis

Mercer National Survey of Employer-Sponsored Health Plans:

• Since 1993, Mercer has surveyed a stratified random sample of 

employers each year through mail questionnaires and telephone 

interviews and published the results in its annual report—National 

Survey of Employer-Sponsored Health Plans.3

 Mercer selects a random 

sample of private-sector employers from a Dun & Bradstreet database, 

stratified into eight categories, and randomly selects public-sector 

employers—state, county, and local governments—from the Census of 

Governments. The random sample of private-sector and government 

employers represents employers with 10 or more employees. Mercer 

conducts the survey by telephone for employers with from 10 to 499 

employees and mails questionnaires to employers with 500 or more 

employees. Mercer’s 2005 database contains information from 2,122 

employers who sponsor health plans, yielding a response rate of 21 

percent. By using statistical weights, Mercer projects its results 

nationwide and for four geographic regions. The Mercer survey report 

contains information for large employers—500 or more employees—

and for categories of large employers with certain numbers of 

employees as well as information for small employers (fewer than 500 

employees). We used the Mercer surveys to report on the changes in 

employer-sponsored health benefits.

Kaiser/Hewitt Survey on Retiree Health Benefits: 

• Since 2002, The Kaiser Family Foundation and Hewitt Associates have 

jointly conducted an annual survey—Survey on Retiree Health 

Benefits—that is based on a nonrandom sample of private-sector 

employers. Kaiser/Hewitt conducted its most recent survey online from 

June 2006 through October 2006 and obtained data from 333 large 

(1,000 or more employees) employers. These employers included about 

one-third of the Fortune 100 companies with the largest retiree health 

obligations in 2005. Because the sample is nonrandom, the survey 

results cannot be generalized to all large employers. We used the 

Kaiser/Hewitt surveys to report on the changes in employer-sponsored 

retiree health benefits. 

 3

 Foster Higgins, which later merged with Mercer Human Resource Consulting, began

conducting the survey in 1986. 

Page 45 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Appendix I: Description of Survey Data Used 

in Our Analysis

We reviewed several major 2005 industry surveys of pension plan sponsors 

including surveys by the Profit Sharing/401k Council of America (PSCA) 

and Hewitt Associates LLC. Since the survey response rates are low, the 

data are not generalizable. To assess reliability of the survey data, we 

contacted the authors of each survey and collected information on the 

methodology that was used to complete it, and determined that the data

were sufficiently reliable for our purposes. 

Private Surveys of 

Employer-Sponsored 

Pension Plans 

Profit Sharing/401k Council of America Survey of Profit Sharing and 

401(k) Plans:

• PSCA’s 49th Annual Survey of Profit Sharing and 401(k) Plan reflects 

2005 plan experiences of its members. PSCA’s survey results are based 

on responses from 1,106 plan sponsors that have profit-sharing plans, 

401(k) plans, or a combination of both and represent 1 to 5,000-plus 

employees. The survey was mailed or faxed to respondents and 

conducted from March 2006 to May 2006. The survey provides a 

snapshot as of the end of 2005. The survey response rate was 21 

percent. PSCA is a national, nonprofit association of 1,200 companies 

and their 6 million plan participants. According to PSCA, it represents 

the interests of its members to federal policymakers and offers 

assistance with profit sharing and 401(k) plan design, administration, 

investment, compliance, and communication. 

Hewitt Associates LLC Pension Surveys: 

• Hewitt Associates biennial survey results are reported in 2005 Trends 

and Experience in 401(k) Plans. The survey results are based on 

responses from 458 employers with 1,000 employees or more. Nineteen 

percent of the respondents represented Fortune 500 companies. The 

survey was conducted from mid-March through April 2005. The survey 

and a link to a Web site were e-mailed to respondents whose e-mail 

addresses were available so that they could complete the survey on the 

Web or on paper. The other surveys were mailed with a stamped and 

addressed envelope. The survey had a 9-percent response rate. Hewitt 

Associates is a human resource outsourcing and consulting firm. 

Hewitt also analyzed 401(k) savings and investment behavior, in its 

research report, How Well Are Employees Saving and Investing in 

401(k) Plans, 2005. The analysis includes more than 2.5 million eligible 

workers and more than 1.6 million active participants across 107 large 

employers. Further, Hewitt reported survey findings in, Hot Topics in 

Retirement, 2006, from responses from 227 employers in October and 

November 2005. Human resource professionals were surveyed to learn 

their likely areas of focus and action over the next year regarding their 

Page 46 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Appendix I: Description of Survey Data Used 

in Our Analysis

defined contribution and defined benefit plans for active salaried 

workers. 

Federal Surveys Current Population Survey: 

• The CPS is designed and administered jointly by the Bureau of the 

Census (Census) and BLS. It is a source of official government 

statistics on employment and employment-based benefits in the United 

States. The survey is based on a sample of the civilian, 

noninstitutionalized population of the United States. Using a multistage 

stratified sample design, about 60,000 households are selected on the 

basis of area of residence to be representative of the country as a 

whole and of individual states. A more complete description of the 

survey, including sample design, estimation, and other methodology, 

can be found in the CPS documentation prepared by Census and BLS. 

We used the Annual Social and Economic Supplement of the CPS to 

estimate the overall percent of the U.S. workers and retirees covered 

by employer-sponsored health benefits and the Contingent Worker 

Supplement to estimate the number of different types of contingent 

workers and their access and participation in employer provided health

and retirement benefits.

National Compensation Survey: 

• The National Compensation Survey (NCS) is conducted by the U.S. 

Bureau of Labor Statistics (BLS), U.S. Department of Labor. The 

estimates provided are for private nonagricultural industries. The NCS 

benefits survey obtains data on private-industry nonagricultural 

establishments and their workers. The survey provides data on access 

to and participation in selected benefits, such as employer health care 

and retirement benefits. We used the survey data to report increases in 

employer benefit expenses and to show workers’ participation in 

employer retirement plans. 

Page 47 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
Appendix II: 

A

GAO Contacts and Staff 

cknowledgments 

Page 48 GAO-07-355

Appendix II: GAO Contacts and Staff 

Acknowledgments 

Barbara D. Bovbjerg (202) 512-7215 or bovbjergb@gao.gov 

John E. Dicken (202) 512-7119 or dickenj@gao.gov

In addition to the contacts named above, Randy DiRosa, Assistant 

Director, and David Lehrer, Assistant Director; Joseph Applebaum; 

Gerardine Brennan; Laura Brogan; Richard Burkard; Susannah Compton; 

Sharon Hermes; John Larsen; Sheila McCoy; Daniel Meyer; Michaela M. 

Monaghan; Tovah Rom; Dayna Shah; and Eric Wenner made key 

contributions to this report. 

GAO Contacts 

Acknowledgments 

Employer-Sponsored Health and Retirement Benefits
Related GAO Products Related GAO Products 

Private Pensions: Changes Needed to Provide 401(k) Plan Participants 

and Labor Better Information on Fees. GAO-07-21. Washington, D.C.: 

November 16, 2006. 

Consumer-Directed Health Plans: Early Enrollee Experiences with 

Health Savings Accounts and Eligible Health Plans. GAO-06-798. 

Washington, D.C.: August 9, 2006. 

Employment Arrangements: Improved Outreach Could Help Ensure 

Proper Worker Classification. GAO-06-656. Washington, D.C.: July 11, 

2006. 

Employee Compensation: Employer Spending on Benefits Has Grown 

Faster Than Wages Due Largely to Rising Costs for Health Insurance 

and Retirement Benefits. GAO-06-285. Washington, D.C.: February 26, 

2006. 

Federal Workers Health Benefits Program: First-Year Experience with 

High-Deductible Health Plans and Health Savings Accounts. GAO-06-271. 

Washington, D.C.: January 31, 2006. 

Private Pensions: Information on Cash Balance Pension Plans. 

GAO-06-42. Washington, D.C.: November 3, 2005.

Retiree Health Benefits: Options for Employment-Based Prescription 

Drug Benefits under the Medicare Modernization Act. GAO-05-205. 

Washington, D.C.: February 14, 2005.

Private Pensions: Implications of Conversions to Cash Balance Plans. 

GAO/HEHS-00-185. Washington, D.C.: Sept. 29, 2000. 

Contingent Workers: Incomes and Benefits Lag behind Those of the Rest 

of the Workforce. GAO/HEHS-00-76. Washington, D.C.: June 30, 2000. 

(130558) Page 49 GAO-07-355 Employer-Sponsored Health and Retirement Benefits
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