What you can count on now

January 28, 2002: 12:48 p.m. ET

Our survey reveals the latest trends in retirement and health benefits.
By Leslie Haggin Geary and Michael Powe

NEW YORK (MONEY Magazine) - Over the past few years, employers fattened their benefit plans with an array of tasty treats, from pet insurance to stress-reducing lunchtime massages. This year, it's back to basics -- retirement, health care, stock options and insurance -- as compensation and benefits managers trim calories in response to the economic downturn and the mounting uncertainty of a nation at war.

The one-two punch of the tech/dotcom meltdown and the terrorist attacks on Sept. 11 is sending shock waves throughout the workplace. And paychecks are not our only area of concern. We working Americans also depend on our employers to subsidize our medical bills, tide us over with disability benefits when we are injured and help to provide a lifetime of income once we retire.

With the job market tipping in favor of employers, the pressure to sweeten benefits to recruit and retain employees is gone, says Gary Kushner, president of benefits consulting group Kushner & Co. "Now companies can focus on what employees really need without bankrupting their plans," he says.

Here are the major trends our survey and reporting revealed in two key benefit areas.

Retirement benefits
Personal retirement funds may be getting a heavy beating from the stock market and layoffs, but the value that employees place in their nest eggs hasn't diminished. In fact, a recent study by Mathew Greenwald & Associates found that 90 percent of wage earners rank retirement plans as "extremely" or "very important," surpassing the ratings given to other benefits like child care, life insurance and job training. That being the case, employees need to brace themselves for the changes that are coming.

Defined-benefit plans Companies are moving away from traditional pensions (in which the payout is determined by a formula applied to final average earnings) in favor of less costly cash-balance plans and the increasingly popular 401(k) defined-contribution plans. Although we're not yet seeing a mass exodus, economic forces on the horizon may accelerate this trend. One major factor: The stock market's dismal performance has made it more expensive to fund traditional pensions, says Milliman's Brad Fowler.

Still, 83 percent of the companies on our list provide pensions, of which 65 percent are traditional plans. Since such pensions accrue later in employees' careers, they are most attractive for longtime workers -- and most expensive for the company. (Respondents to our questionnaire reported that the average traditional pension pays 30 percent of final earnings for an employee who retires after 20 years.)

Northwestern Mutual Life (No. 11 out of 75 on our list of companies with the best benefits), tops the list in terms of pension generosity. Retire from this Milwaukee-based insurance provider and you can count on roughly 45 percent of your final pay after 20 years of service. Employees can receive a full pension as early as age 60 as an annuity. Bristol-Myers Squibb (No. 3 on the list) replaces roughly 40 percent of final pay for an employee with similar demographics, which can be taken as an annuity or a lump sum. United Parcel Service (No. 8) and ConAgra (No. 44) replace nearly 50 percent of final pay for 20-year veterans; however, retirees must wait until age 65 to receive the full pension.

The remaining 35 percent of employers offering pensions have cut costs by switching to cheaper plans. Two of the most popular: Cash-balance plans accrue benefits more evenly over your career and, therefore, tend to be better deals for newer or younger employees or job hoppers. Pension-equity plans are similar to traditional pensions, but sometimes the payouts are lower. Companies on our list that offer other than traditional pensions replace 20 percent of final earnings (on average) for an employee who retires after 20 years.

Defined-contribution plans When it comes to 401(k)s and other defined-contribution plans, there's good news and bad. First, the good: Virtually all of our respondents provide 401(k) plans, and 35 percent of companies share profits independent of matches with their employees -- that's up from 28 percent last year.

Companies in this year's survey typically match 3.6 percent of salary for employees who stash 6 percent of their pay in a 401(k). Profit-sharing contributions average 5.7 percent of a worker's pay. Household-goods giant Procter & Gamble (No. 4) easily leads the field. Its annual profit-sharing amounts to 23 percent of salary. Abbott Laboratories (No. 6) provides a 250 percent match on the first 2 percent of pay that an employee salts away in a 401(k), plus an average annual profit-sharing contribution of 7.1 percent.

Now for some sobering truths: Employers aren't donating as much to these retirement funds as they used to. "There's less money being put in profit-sharing and 401(k) plans because companies are not as profitable," explains David Wray, president of the Profit Sharing/401(k) Council. Fortunately, some of the shortfall may be made up by the 2001 tax law that lets employees contribute more to retirement plans.

Health care
Skyrocketing health-care costs aren't new. But companies' ability to absorb the tab is weakening. Medical inflation, which had slowed in the mid-1990s, is accelerating again, thanks to the cost of prescription drugs, which soared 15 percent this year. Couple rising health insurance premiums with an anemic economy and shrinking corporate profits, and you've got employers who are too weak to shoulder the rising cost of care.

"So far, employers have been absorbing a lot of the costs because of the tight labor market, but that's not expected to continue," says Paul Ginsburg, president of the Center for Studying Health System Change. "I expect we'll see more patient cost-sharing. Consumers will have to pay more for their flexibility in choosing providers."

Respondents to our survey also are asking employees to pay more, depending on the coverage they choose. All companies provide health-care benefits, typically picking up 80 percent of the premium costs and offering employees a choice of three providers on average.

The average out-of-pocket cost to workers runs $108 a month for family coverage this year. Employees who stick to more restrictive health maintenance organizations (HMOs) pay $101 a month. Those enrolled in a preferred-provider organization (PPO), which lets employees see doctors outside a managed-care network, pay more: about $119 a month.

Ninety-five percent of the companies on our list pay some or all of dental premiums. Vision coverage is less widespread, with just under half subsidizing it. That said, if you worry about health care, you may want to work for AT&T (No. 19), where employees can choose among four providers and the company covers 100 percent of premiums, plus free dental and vision coverage.

Coverage for retirees Retirees are finding it increasingly difficult to qualify for employer-sponsored health coverage or are being asked to pay more (or even the entire cost) of premiums. About 70 percent of the respondents offer post-retirement medical coverage, paying 70 percent of costs. However, six firms stopped providing the benefit in recent years to new hires. Unfortunately, we'll probably be seeing more of these types of cutbacks by the time we send out this survey next year.

Additional reporting by Megan Johnston and Jason Grunberg