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Retirement Planning > Retirement Investing

U.S. Workers Willing to Trade Pay for Better Retirement Benefits

By Bill Coffin

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Faced with the possibility of future reductions in employer-provided benefits, an increasing number of U.S. workers say they are willing to trade some of their pay for more secure and generous retirement and health care benefits, according to a survey of more than 9,200 workers by global professional services company Towers Watson (NYSE, NASDAQ: TW). The survey showed nearly half of the workers polled are worried about reductions in their retirement benefits over the next two years.

The Towers Watson survey found that more than half (55%) of respondents are willing to pay a higher amount from each paycheck to ensure they have a guaranteed retirement. That compares with 46% two years ago. Additionally, 50% of respondents say they would trade a portion of their pay to ensure they have access to health care benefits if they retire before they are eligible for Medicare benefits, versus 40% in 2009. More than half (53%) of those polled said they would be willing to trade a portion of their pay in return for more generous benefits.

“Since the economic crisis, employees have been paying much closer attention to their retirement readiness, and many are willing to look at new ways to balance their mix of pay and benefits,” said Kevin Wagner, a senior retirement consultant at Towers Watson. “This may reflect their firsthand experience with financial market volatility, continuing worries about the economy and fears of future cutbacks to benefits. Workers, especially older employees, may also be reeling from declines in their retirement account balances as well as home values due to the financial crisis. As a result, retirement security has become significantly more important to them.”

This growing interest in retirement security is not limited to older workers. In fact, the survey found that some of the most dramatic changes in attitudes toward risk, rewards and security trade-offs have been among younger employees and those with a defined benefit (DB) plan. Among DB plan participants younger than 40, the number willing to pay for a guaranteed retirement benefit jumped by nearly 70%, from 39% in 2009 to 66% in 2011.

The Towers Watson survey found that many employees fear that additional cuts in their retirement and health benefits are on the horizon. More than four in 10 (44%) are worried about reductions to their retirement benefits over the next two years, with younger DB plan participants particularly concerned (63%). Employees are even more concerned about having to shoulder more financial responsibility for their health care costs. Nearly three in four employees (73%) are concerned about higher out-of-pocket health costs and copays over the next two years, compared with two-thirds (67%) in 2007.

“The fact is that predictable health costs and retirement guarantees have become significantly more important over the last few years to employees, no matter what their age. Employees are clearly becoming more interested in adjusting the balance between financial risk and opportunity toward security, especially when it comes to their retirement benefits. For employers, addressing employees’ retirement and health care benefit preferences could very well help to lessen their financial worries and increase engagement levels,” said Bill Daniels, a senior retirement consultant at Towers Watson.

Other findings include:

  • Rising health care costs is the most important reason employees are concerned about retirement security, cited by 64% of respondents. More than half (56%) cited concerns over Social Security or Medicare benefits, and higher prices for necessities.
  • Older employees, women, lower-paid workers and those with health issues are most willing to relinquish control over their retirement investments in exchange for more stability in their retirement benefits over the long term.

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