Employer-Sponsored Health and Retirement Benefits: Efforts to Control Employer Costs and the Implications for Workers
Published: 2007-03-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: Many workers receive health and retirement benefits from their  employers, and the cost of these benefits in recent years has risen faster  than wages. 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 employer- sponsored 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  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  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.
subsections: section_title: Background
paragraphs: 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 full- time, 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.
subsections: section_title: The U.S. System of Employer-Sponsored Health and Retirement Benefits
paragraphs: 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  workers and their dependents. 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. 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. Figure 1 shows the real  growth in hourly expenses attributable to wages and benefits between  1991 and 2005.
Kaiser/Hewitt Surveys on Retiree Health Benefits, 2003-2005.
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.
section_title: Evolution of Employer- Sponsored Health Benefits
paragraphs: 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.
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  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. 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 high- deductible health plan with a tax-advantaged account that enrollees can  use to pay for a portion of their health care expenses. 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  providers, to help them become more actively involved in making health  care purchasing decisions.
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  comprehensive health plans have no coverage caps or have lifetime caps  in excess of $1,000,000.
section_title: Types of Employer- Provided Retirement Benefits
paragraphs: 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. 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  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. 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    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.
section_title: Workforce Restructuring
paragraphs: 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 part- time workers. 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  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.
Also, some workers are employed through alternative arrangements, such  as with Professional Employer Organizations (PEO). PEOs usually operate  as co-employers with traditional employers. According to the National  Association of Professional Employer Organizations there are currently 2  to 3 million workers in such arrangements.
section_title: Key Legal Protections for Workers and Retirees
paragraphs: 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.
The Employee Retirement Income Security Act of 1974 (ERISA) governs  employee pension and welfare plans, which includes health care benefits.  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.  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  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.
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. 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.
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.  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. Health- status-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. 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.
section_title: Recent Changes in Employer-Sponsored Health Benefits Prompted by Cost Concerns May Particularly Affect Lower-Wage and Less Healthy Workers
paragraphs: 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.
subsections: section_title: Fewer Small Employers Offered Health Benefits
paragraphs: 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. 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. 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. 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.
section_title: Many Employers Changed the Design of Health Benefit Packages
paragraphs: Industry experts and survey data indicate that employers are changing  health benefits packages in several ways.
subsections: section_title: Shifted More Responsibility for the Costs of Health Benefits to Workers
paragraphs: 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. 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. Costs were also shifted to workers through  increased co-payments and coinsurance at the point of care. Recent data  shows that among workers enrolled in PPOs that required either co- payments or coinsurance, the co-payment amounts and coinsurance rates  increased for many workers (see table 2).
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.
section_title: Introduced New Health Plan Options
paragraphs: 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. 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.
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 long- term cost savings. Early evidence suggests that premiums are growing  more slowly among CDHPs than among PPOs and HMOs.
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.
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). 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.
section_title: Offered Health and Wellness Programs
paragraphs: 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. 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.
section_title: Employers Continued to Offer Retiree Health Benefits, but Shifted More of the Costs to Retirees, and Some Employers Eliminated Health Benefits for Future Retirees
paragraphs: 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. 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. 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.
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, co- payments, deductibles, and out-of-pocket spending limits (see table 4). 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.
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  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.
section_title: Certain Recent Changes in Employer-Sponsored Health Benefits May Particularly Affect Low Income and Less Healthy Workers
paragraphs: 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). 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. 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.
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. 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  than enrollees in other plans. 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. 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. 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 cost- sharing, and this was more pronounced among those with low incomes.  In addition, one study found that CDHP enrollees believed they did not  have the information they needed to make wise decisions about the cost  and quality of health care services. 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. 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  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. 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.
section_title: The Ongoing Shift to Different Types of Employer-Sponsored Retirement Plans Continues to Affect Both Employers’ and Workers’ Roles in Retirement Planning
paragraphs: 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.
subsections: section_title: Participation in Traditional Defined Benefit Plans Decreased as Some Employers Terminated or Froze Plans, and Others Converted to Cash Balance Plans
paragraphs: 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. 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).
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. Most of these plans were  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. Some  court decisions have found certain cash balance plans to be age  discriminatory.  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.
section_title: Participation in Defined Contribution Plans Continues to Increase as More Employers Offer Plans
paragraphs: 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.
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.
section_title: Some Workers Participate in Both Defined Benefit and Defined Contribution Plans
paragraphs: Since the mid 1980s, a steady percentage of workers have participated in  both DB and DC plans sponsored by their employers. 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.
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.
section_title: Employers’ Retirement Plan Decisions Reflect Their Preference for Retirement Benefit Cost Control and Predictability
paragraphs: 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. 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. Nonetheless, several large  companies that froze their DB plans and enhanced existing DC plans  publicly stated that the actions would save their companies money.
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  rates and changes in the value of plan assets. 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.  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. 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. 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.
section_title: Employer Decisions May Affect Worker Roles in Retirement Planning
paragraphs: 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  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. 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. 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. Another technique employers are  using in an attempt to increase workers’ retirement savings is  automatically escalating workers’ 401(k) contributions. An employer  survey found that, in 2003, only 1 percent of plans offered automatic  escalation while 9 percent offered this feature in 2005.
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. 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. 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. 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,  automatic escalation, and default investments, then the workers’ role  through retirement is more similar to that under a DB plan.
section_title: Workforce Restructuring Can Result in Different Benefit Arrangements for Workers and May Affect Employer Benefit Costs
paragraphs: Workforce restructuring through the use of contingent workers may affect  workers’ benefits. 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.
subsections: section_title: Fewer Contingent Workers Participate in Employer- Sponsored Benefit Plans, While Participation by Part-Time Workers Has Remained Stable
paragraphs: 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).
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 employer- provided 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 government- sponsored plan—percentages increase and the difference between full- time 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.
Our analysis of BLS data shows that pension and health care participation  rates for part-time workers—the largest component of contingent  workers—have remained relatively constant between 1999 and 2005 (see  table 8).
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. 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). 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.
section_title: Employers’ Use of Contingent Workers Can Affect Benefit Costs, but the Extent to Which This Leads Employers to Use Contingent Workers Is Uncertain
paragraphs: 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).
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.
section_title: Concluding Observations
paragraphs: 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.
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 employer- sponsored 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.
section_title: Agency Comments
paragraphs: 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.
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.
section_title: Appendix I: Description of Survey Data Used in Our Analysis
paragraphs: 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.
subsections: section_title: Private Surveys of Employer-Sponsored Health Benefits
paragraphs: We relied on data from two annual surveys of employer-sponsored health  benefit plans conducted by private entities, 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. 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.
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. 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.
section_title: Private Surveys of Employer-Sponsored Pension Plans
paragraphs: 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.
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  defined contribution and defined benefit plans for active salaried  workers.
section_title: Federal Surveys
paragraphs: 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.
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.
section_title: Appendix II: GAO Contacts and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: 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.
section_title: Related GAO Products
paragraphs: 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.