Table 2. Employer costs per hour worked for total compensation and retirement and savings plans and
relative errors! by major categories, March 1996

~ Total Retirement and Detined cenoined
a compensation savings eI yon

Series plans plans
Total | Percent} Total | Percent] Total | Percent] Total | Percent
100.0 | $0.75] 40] $0st 27 | $0.23 13
100.0 g2] 44 60} 27 32 14
100.0 68] 39 49| 28 +19 1
100.0 37] 36 31 34 05 5
State and local government workers .. 25.73 | 100.0 190} 7.4 176] 69} 43 5
White-collar occupations 28.56 | 100.0 | 202] 7.1 186} 65 16 6
Biue-collar occupations 20.88 | 100.0 151 72 1.41 68 10 5
‘Service occupations 18.92 | 100.0 171 9.0 165] 87 06 3
Private industry workers 17.49 | 100.0 55] 3.4 30 17 25 1.4
White-collar occupations. 21.10 | 100.0 6] 3.4 30 1.4 36 17
Blue-collar occupations 17.04 | 100.0 62| 36 42} 25 20 12
Service occupations 861 | 100.0 13 15 08 a 05 &
Goods-producing industries? 100.0 80] 37 48) 23 32 15
Service-producing industries? 100.0 AT] 29 24 15 23 14
Full-time workers 20.01 | 100.0 a7] 34 36 18 a 16
Part-time workers .. 9.19 | 100.0 13] 14 08 3 05 5
23.31 | 100.0 132| 57 106] 45 27 14
16.61 | 100.0 43] 26 18 1A 25 15
14.85 | 100.0 34{ 23 16 1 8} 4.2
20.09 | 100.0 751 37 43| 22 31 16
16.61 | 100.0 49] 3.0 26 16 23 1.4
24.03 | 100.0 1.03] 43 63| 26 A Ww

08 2.0 24 37

12 29 34 44

12 37 43 61

13 62 66 11.0

1 24 22 92

12 24 24 96

28 74 78 177

3.0 67 69 24.9

1.0 3.0 44 40

14 44 64 49

13 44 54 63

141 58 49 12.1

Goods-producing industries? 2.0 48 56 TW

‘Service-producing industries? 1 4.0 56 5A

Fulltime workers. 1 3.0 40 3.9

Part-time workers 24 14.0 19.7 212

18 57 59 94

12 36 55 43

13 55 83 63

15 3.8 52 48

24 5.1 8.1 68

16 5.1 6.9 56

1 The relative error is the standard error expressed as.a percent 2 Includes mining, construction, and manufacturing.
of the cost. We can be95-percent confident that the interval around 3 inckudes transportation, ind publ, ition:

the cost estimate bounded by two times plus and two times minus wholesale and retail trade; finance, insurance,
the service industries.

‘standard error contains the ‘true’ cost.

55 Compensation and Working Conditions Spring 1998


Employee Benefits

Linking Retirement

Plan Measures

BY HARRIET G. WEINSTEIN

How do the employer expenditures for their employees”
retirement plans relate to the participation rates of their
employees in the plans? Is there any difference in the rela-
tionship of cost and participation for defined benefit pen-
sion plans (which use predetermined formulas to calculate
retirement benefits) and defined contribution plans (which
specify the employer’s contribution but not the eventual
benefit)? Recent changes in the BLS compensation sur-
veys shed some light on the link between employer cost
and employee participation rates.

Work is currently underway to integrate all the wage
and benefit surveys compiled by the Office of Compensa-
tion and Working Conditions into one comprehensive sta-
tistical program—called National Compensation Survey
(NCS) that will provide a diverse set of measures of em-
ployee compensation. The development of NCS is proceed-
ing in stages. When fully implemented, it will provide in-
formation on wages, benefit provisions, and the cost of these
benefits using a common sample design. This will allow
for a link between benefit incidence data and the cost of the
benefit. Several steps have already been completed towards
this goal, including the use of common definitions, and the
introduction of separate employer cost measures for defined
benefit and defined contribution plans. This article high-
lights the results of these developments and presents data
stemming from the progress made to date.

Common definitions

In the past, the Employee Benefit Survey (EBS) and the
Employer Costs for Employee Compensation (ECEC)' se-
ries collected data on a broad category of retirement ben-
efits, but they used different titles and definitions. The EBS
provided detailed data on a variety of items classified as
retirement plans, while the ECEC collected cost data on
either pension or savings and thrift plans. These surveys
established a revised common definition with two broad
retirement benefit categories: one is limited to defined ben-
efit pensions, and the other includes a variety of defined

Harriet G. Weinstein is an economist in the Division of Compensation
Data Analysis and Planning, Bureau of Labor Statistics. Telephone (202)
606-6237.

contribution plans (such as deferred profit sharing plans,
employee stock ownership plans, money purchase pension
plans, savings and thrift plans, simplified employee pen-
sions, and stock bonus plans).

EBS measures of the entire economy

The sample design, data collection, and processing pro-
cedure used to tabulate information on benefit participa-
tion is being revamped to provide data on the entire economy
in any given year. While the EBS has tracked the inci-
dence and characteristics of defined benefit and defined
contribution plans for 16 years, the series focuses on differ-
ent segments of the economy each year. During odd-num-
bered years, private establishments with 100 or more work-
ers, which BLS refers to as “medium and large”
establishments, are surveyed. During even-numbered years,
two surveys are conducted, one of small private establish-
ments (those with fewer than 100 employees) and the other
of State and local governments. Beginning in 2000, data
on benefit participation will be collected from the same
sample of the entire economy used to compile measures of
benefit costs.

Data limitations

The data presented in this article provide a taste of the
information that will be available when the NCS survey is
fully integrated. However, care should be exercised in com-
paring the ECEC and EBS measures presented here. The
participation data presented in this article were derived by
combining the results of the 1994 and 1995 EBS surveys
(the most recent surveys available) to provide an estimate
of the entire economy, with 1996 ECEC data (which intro-
duced separate cost measures for defined benefit and de-
fined contribution plans).

Participation rates

The 1994-95 EBS surveys show that 57 percent of full-
and part-time workers in private industry and State and
local government participated in an employer-sponsored
retirement plan.? Approximately 36 percent participated
in defined benefit plans compared to 33 percent in defined
contribution plans. Participation rates for full-time work-

Compensation and Working Conditions Spring 1998 52


ers (66 percent) are greater than those for part-time work-
ers (23 percent). (See table 1.)

About 90 percent of State and local government workers
participated in retirement plans, compared to half of those
employed in private establishments. In the public sector,
participation ranged from 82 to 87 percent for defined ben-
efit plans for all occupational groups. In contrast, 28 per-
cent of private industry workers were covered by defined
benefit pension plans as compared to 37 percent participat-
ing in defined contribution plans.

Coverage rates varied by occupation. About 66 percent
of white-collar workers, compared to 58 percent of blue-
collar, and 30 percent of service workers had a retirement
plan,

Workers in unions were much more likely to have a re-
tirement plan than their nonunion counterparts (87 percent
versus 50 percent). Unionized workers were more likely to
participate in defined benefit plans (83 percent) than de-
fined contribution plans (22 percent). In contrast, approxi-
mately 35 percent of nonunion workers participated in de-
fined contribution plans compared to 27 percent in defined
benefit plans.

In private industry, about two-thirds of workers in goods-
producing industries participated in retirement plans com-
pared to 46 percent of those in the service-producing in-
dustries. Workers in goods-producing industries had a
higher participation rate than those in service industries, in
both defined benefit and defined contribution plans.

Coverage rates vary overall, as well as for the two plan
types, by the employment size of the establishment. Over
80 percent of the workers employed in private industry es-
tablishments with 500 workers or more participated in a
retirement plan compared to 33 percent in establishments
with fewer than 100 workers. About 60 percent of those in
the larger establishments had a defined benefit plan, while
55 percent had a defined contribution plan. In contrast,
defined contribution plans were more common than defined
benefit plans in smail establishments.

Employer costs for employee retirement plans
Employers’ contributions to a retirement plan are affected
by many factors. For defined benefit plans, the Employee
Retirement Income Security Act (ERISA) sets minimum
and maximum funding requirements. In addition to tax
considerations, fund investments may generate sufficient
income enabling employers to make little or no payments
to the fund in some years. Various plan provisions, includ-
ing the formulas used to determine pension payments, can
also affect the employer costs for providing this benefit.
Employer costs for defined contribution plans are deter-

mined by factors such as company profits in the case of
deferred profit sharing plans, and the level of matching
employee contributions to savings and thrift plans that trig-
ger matching employer contributions.

In 1996 employer costs for retirement and savings plans
averaged 75 cents per hour worked, or 4 percent of the
employer total costs for employee compensation. (See table
2.) Employer expenditures for defined benefit pension plans
were twice that for defined contribution plans (51 cents per
hour worked versus 23 cents, respectively). For both pri-
vate industry and the public sector, expenditures were higher
for defined benefit plans than defined contribution plans.
Expenditures differed by occupational group: White-collar
workers-92 cents; blue-collar workers—68 cents; and ser-
vice workers—37 cents.

The differences in the retirement plan costs for private
industry and State and local government workers (55 cents
and $1.90 per hour worked, respectively) can be explained
by several factors. State and local government workers have
a higher participation rate than workers in private indus-
try. In addition, public employee plans provide more gen-
erous benefits, in part to offset the lack of Social Security
coverage that private sector employees receive to supple-
ment the benefits stemming from their retirement plans.
Although nearly all workers in private industry are covered
by Social Security, about one-fourth of full-time State and
local government employees with defined benefit plans are
not covered by Social Security?

Within private industry, employer expenditures on re-
tirement plans were higher for union workers, full-time
workers in goods-producing industries, and workers in
larger establishments. In comparing employer costs for
defined benefit and defined contribution plans separately,
expenditures for union worker defined benefit plans were
greater than those for defined contribution plans. Simi-
larly employer costs for defined benefit plans for workers
in larger establishments were higher than those for defined
contribution plans.

Conclusion

Despite the limitations of any analysis merging infor-
mation from surveys using different samples and reference
years, the data indicate that employer expenditures for re-
tirement plans are higher in those sectors where benefit
coverage is more common. Ultimately, the National Com-
pensation Survey sample design will produce data that will
allow for a more rigorous analysis of the relationship be-
tween benefit participation and employer costs. These stud-
ies will not be limited to the pension arena, but will cover
the gamut of benefits in employee compensation packages.

— ENDNOTES —

‘ The Employer Costs for Employee Compensation series is derived from
data collected for the Employment Cost Index, a quarterly measure of coma-
Peasation costs that includes retirement plan costs.

2 According to the two 1994 employee benefit surveys, 89 percent of the
‘State aad local government workers and 34 percent of those employed in
‘small private industry establishments participated in a retirement plan. The

53 Compensation and Working Conditions Spring 1998

1995 survey showed that 73 percent of the employees in medium and large
establishmeats in private industry participated in a plan.

> For a more detailed discussion of the difference in public and private
sector defined benefit pensions, see Ann C. Foster, “Public and Private Sector
Defined Benefit Pensions: A Comparisoa,” Compensation and Working
Conditions, Summer 1997, pp. 37-43.


Table 1. Participation rates in employer-sponsored retirement and savings

plans, by category of worker, 1994-95
(percent)

Defined
Series Total’ | hencat plans | Contibution
plans
57 36 33
66 4 39.
58 37 36
30 22 12
66 42 39
Part-time workers 23 16 12
87 83 22
50 27 35
89 86 8
91 87 8
91 87 8
84 82 7
95 91 9
56 55 4
91 91 4
88 81 12
51 28 37
60 31 46
56 34 37
a 12 13
Goods-producing industries” 67 43 46
Service-producing industries? 46 23 34
Fulbtime workers 60 33 44
Part-time workers 20 1 13
85 7 33
47 21 38
33 2 26
60 30 43
82 60 55

1 Sum of individual items exceed total
because some employees may paiticipate in
ott types of plans.

Includes mining, construction, and manu-
facturing.

3 Includes transportation, communications,
and pubiic utilities; wholesale and retail trade:
finance, insurance, and real estate; and service
industries.

Compensation and Working Conditions Spring 1998 54