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Retirement Planning > Retirement Investing

GAO: Benefits Cost Increases Squeeze Out Wages

By Staff Writer

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U.S. employer spending on health coverage and retirement plans grew far more rapidly than spending on wages between 1991 and 2005.

Although benefits costs increased about as fast as wages from 1991 to 2002, a sudden jump in health and retirement plan costs pushed benefits cost inflation far higher than wage growth between 2003 and 2005, according to researchers at the U.S. Government Accountability Office.

Between 1991 and 2002, U.S. employers’ inflation-adjusted wage costs and employers’ inflation-adjusted benefits costs increased about 10%, the GAO researchers write in a report on employee compensation prepared at the request of Democratic members of the U.S. Senate Committee on Health, Education, Labor and Pensions.

But because of a sudden escalation in benefits costs that started in 2003, total inflation-adjusted benefits costs ended up increasing 18% between 1991 and 2005, while average inflation-adjusted wages increased only 10%.

Health coverage cost increases have been getting most of the media attention, but retirement plan costs grew faster.

After adjustments for inflation, the average hourly cost of retirement benefits increased 47% between 1991 and 2005, to 87 cents, while the average hourly cost of health benefits increased only 28%, to $1.59.

Although health benefits increased about 30% to 50% for large and midsize employers, large employers and union employers found that their retirement benefits costs increased an average of almost 100%.

The GAO researchers are attributing much of the retirement benefits cost increase to weak defined benefit pension plan investment performance in the early 2000s.

“Stock prices generally fell from April 2000 to February 2003, and interest rates on bonds and other investments remained low, requiring employers to contribute more funding to defined benefit plans beginning in 2003 to meet minimum funding requirements,” Sigurd Nilsen, a GAO director, writes in a letter presenting the GAO findings.

A copy of the GAO report is on the Web at Document Link

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