Employer-sponsored retiree benefits fading

By Darla Mercado

Oct 28, 2012 @ 12:01 am (Updated 3:16 pm) EST

Employees are managing expectations in retirement as employers reduce health benefits for retirees.

Data from the Employee Benefit Research Institute show that in 1997, 10.2% of private-sector employers provided health insurance to Medicare-eligible retirees, while 11.3% provided such coverage to early retirees. As of last year, those numbers had fallen to 6.1% and 6.7%, respectively.

Health insurance during retirement also has been on the decline for local-government employers with at least 10,000 workers: 87.6% of those employers gave early retirees insurance benefits in 1997, while 81% provided coverage to Medicare-eligible retirees. Those numbers have slipped to 77.6% and 67.3%, respectively.

Accordingly, workers are feeling somewhat less confident about the prospect of getting health benefits once they stop working.

EBRI's analysis of 35.7 million wage and salary workers 45 to 64 in 1997 and of 52.7 million such workers in 2010 showed that 45% in the former group expected coverage; the percentage had declined to 32% in the latter group.

“The data show that workers are still more likely to expect retiree health benefits than retirees are actually likely to have those benefits, but the expectations gap is closing,” said Paul Fronstin, head of health benefits research at EBRI.

A major driver of the decision to stop providing health care benefits is connected to accounting rules for private-sector employers that date to 1990. In complying with the rules, which require companies to account for the cost of post-retirement benefits aside from pensions, many companies for the first time realized how much they were spending to provide coverage to retirees.

Most companies that continue to provide benefits have raised premiums that retirees must pay for coverage, restricted eligibility for new retirees or limited benefits, according to EBRI.

dmercado@investmentnews.com Twitter: @darla_mercado