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Retiree Benefits: Are They Here to Stay?

January 21, 2013
Elyse Lamontagne
Elyse Lamontagne
Research Associate
Leadership and Human Resources Research
Karla Thorpe

Leadership and Human Resources Research

More than half of Canadian employers responding to The Conference Board of Canada’s latest Benefits Benchmarking survey offer benefits to all or some of their retired workers. Although the overall prevalence of retirement benefits in organizations is virtually unchanged from the previous survey conducted in 2009, programs for retirees are being scrutinized as part of overall cost-containment pressures.

Retiree benefits are expensive—annual premiums average close to $1,000/year, about $200 higher than premiums for active employees. Accounting changes have also made it less financially appealing to offer retiree benefits since the estimated dollar value of benefits that are being earned by active employees (to be provided upon the employee’s future retirement) must be reported as a liability on an employer’s balance sheet.

Despite this environment, only about one in ten organizations with retiree benefits plan to eliminate them entirely. An additional four in ten organizations plan to make some changes to reduce the level of retiree benefits. Yet, the remaining half of organizations plan to maintain their current retiree benefits programs.

Prevalence of Retiree Benefits table

Who gets retirement benefits? By a large margin, they are enjoyed by a significant proportion of public sector workers, unionized workers, and people working for the country’s largest employers.

The most frequently offered retiree benefits include prescription drug coverage, vision care, hospital accommodation, paramedical services, dental care and group life insurance. However, coverage for retired workers tends to be more limited than for full-time employees. While some retiree benefits may continue unchanged upon retirement, in some cases coverage may be restricted. For example, group life insurance may be reduced to a lower percentage of final annual salary (e.g., 50 per cent) or reduced to a flat amount (e.g., $10,000) upon retirement.

For employers that have been grappling with the rising costs of benefits, one strategy is to close retiree benefits plans to new employees or to limit those who are eligible. That said, 49 per cent of the organizations offering retiree benefits plans have kept them open—meaning that employees who join the organization are eligible for benefits upon retirement. “Open” retiree plans are much more common in the public sector (55 per cent) compared to the private sector (46 per cent).

Eliminating or significantly changing retiree benefits plans could have unintended consequences. If employees do not believe they have sufficient retirement savings to cover medical costs, they might decide to stay in the workforce longer in order to maintain their benefits. Active employees retain more generous benefits than retirees, including short term and long term disability, so reducing retirement benefits in a cost-containment exercise could increase overall plan expenditures.

With an aging population and escalating health care costs putting pressure on employer plans, retiree benefits plans will continue to be under scrutiny. Employers will have to decide if retiree benefits are an essential attraction and retention tool or if they can be abandoned, or scaled-back, to focus on strategies that will better motivate and engage all employees within the organization.


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