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By Ian Salisbury
July 18, 2017
Getty Images—This content is subject to copyright.

If you feel like your employer’s retirement plan has been getting stingier and stingier you’re right. One big culprit: Soaring health care costs that have been eating up a bigger and bigger share of companies’ benefits budgets, leaving little left over for retirement.

In all, employers have actually been spending more on benefits, at least relative to base pay, than they did half a generation ago, according to Willis Towers Watson, a consulting company that helps large corporations design benefits packages. As of 2015, total benefits comprised about 18.3% of workers compensation, on average, up from 14.8% in 2001.

But there is a big catch: That growth is almost entirely due to health care, and workers’ retirements are suffering as a result. “Health care benefits are eating up a larger portion of dollars while the amount spent on retirement programs is on the decline,” says Willis Towers Watson Managing Director John Bremen.

Employers’ health care spending more than doubled to 11.5% of worker pay in 2015, from just 5.7% in 2001, Willis Towers Watson found. Of course, health care costs have been rising for a host of reasons — with everything from soaring prescription drug costs to hospitals’ so-called fee-for-service business models, all sharing the blame. While it’s tempting to blame Obamacare, at least from an employers perspective, the biggest increase actually occurred between 2001 and 2008, when spending jumped 3.4 percentage points to 9.1% of employees’ total pay from 5.7%. Between 2008 and 2015, it climbed only 2.4 percentage points. Obamacare went into effect in 2010.

Whatever the cause, employers appear to be re-directing dollars that might otherwise have been earmarked for workers retirements. While spending on 401(k)s and other defined contribution plans has ticked up — to 5.7% from 4.1%, that’s largely a result of employers freezing or eliminating more generous pensions to save money. Indeed, defined-benefit spending declined, to 0.9% from 3.8%, more than offsetting any extra contributions to workers’ 401(k)s.

In total, spending on retirement benefits is down by about one fourth since 2001, to 6.8% of pay from from 9.1%.

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The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

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Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

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