And the cost of health care benefits for active employees accounted for two-fifths, or 42 percent, of total benefit dollars

By 2015 that ratio had inverted, with the investment in retirement plans dropping to 37 percent, and the cost of health care benefits spiking to two-thirds, or 64 percent of total benefit spend.

While health care inflation has slowed in recent years, it has continued to outpace overall inflation. The health care consumer price index showed a 5.2 percent increase in the cost of health care in 2007, the greatest rate of inflation since 2005.

In 2015, the HC CPI showed health care inflation slowing to 2.8 percent. But that improvement was muted by its relation to overall inflation, which was negative.

Much of employers’ reduced spending on retirement benefits is explained by the ongoing shift from defined benefit to defined contribution plans, Willis Towers Watson’s analysis notes.

But ongoing increases in the cost of health care relative to overall inflation raises the implication that health care costs have motivated, at least in part, the shift away from guaranteed pensions.

And while employers have saved money moving to defined contribution plans, their all-in benefits investment—health care and retirement—rose from 14.8 percent of pay in 2001 to 18.3 percent in 2015.

Willis Towers Watson’s numbers, which were drawn from the firm’s proprietary database of 500 employers with at least 200 workers, also raise the question of how much the cost of benefits has weighed on sluggish wage inflation since 2000.

According to the Bureau of Labor Statistics, the average hourly wage at the end of 2004 was about $18. By the end of 2016 it was just under $24 an hour, or a 33 percent increase.

Meantime, the cost of benefits accelerated at a higher clip, according to BLS data. In 2004, total benefits cost employers $7.50 an hour. By the end of 2016 it was $11 an hour, a nearly 47 percent increase.

|

Pension costs equal to 401(k) in 2015

While retirement plans costs vary by employer and industry, Willis Towers Watson’s study shows that defined contribution plans don’t necessarily equate to lower costs than defined benefit plans for employers.

In fact, in 2015 the expenses were equal—employer costs for defined benefit and defined contribution plans were 6.1 percent of pay.

But employers who sponsor both a traditional pension and a 401(k) incur considerably higher costs than employers who only offer a defined contribution plan. Providing both costs nearly 10 percent of salary.

Overall retirement costs are also more expensive in industries that tend to offer traditional pensions. In the energy sector, which tends to have higher rates of unionization and consequently more commonly provides DB plans, the average all-in cost of funding retirement benefits averaged 12 percent of pay.

Conversely, retirement costs in the retail sector were about half of that.