Evidence on Defined Contribution Health and Retirement Benefits : The Road Ahead

For more than a quarter-century now, most private-sector American workers who have a retirement plan at work have funded it primarily through their own contributions -- and do not have a traditional pension funded exclusively by the employer. Various new retirement policy proposals could go in opposite directions: encourage greater participation in retirement plans (such as with auto-IRAs), change employee 401(k) contributions through a “stretch match” (to increase account balances) -- or possibly even cut federal tax incentives for workplace retirement plans. While the majority of private-sector health benefit costs historically have been paid by employers, that may be starting to change with the advent of “defined contribution” health plans that cap employers' health costs. While there are similarities between “defined contribution” retirement and health, there are also significant differences, and there are pros and cons for both employers and their workers. And at least with the advent of private health exchanges, there is often confusion about what the term actually means. These trends have major implications for the American work force, the U.S. health care system, and even economic security in the nation. To explore these issues, the nonpartisan Employee Benefit Research Institute (EBRI) held its 76th policy forum in Washington, DC, on May 14, 2015, on the future of defined contribution health and retirement plans. Experts from a cross-section of employers, nonprofits, consulting firms, think-tanks and trade associations shared their observations and experiences with “DC benefits” with both health and retirement plans, and what “The Road Ahead” looks like. This paper summarizes the presentations and discussions put forth at the policy forum