Most Workers Underestimate Employer's Health Costs, but value 401(k) Matches

Six out of 10 say the value of their benefits has declined

By Stephen Miller Mar 18, 2009

Most U.S. workers underestimate the employer cost of providing health insurance to employees, a worker sentiment study by Fidelity Investments' consulting services finds, while separate Fidelity research reveals the extent to which 401(k) matches drive plan participation.

Health Cost Misperceptions

A majority of U.S. workers (53 percent) believe their employers pay less than $5,000 annually per person to provide health insurance. In fact, health plans typically cost employers $5,000 to $15,000 per employee on an annual basis.

"Health care benefits are critically important to most employees, and yet many don't understand how expensive it is for companies to provide these benefits," says Brad Kimler, executive vice president of Fidelity's consulting services business. "In the current economic climate, this data suggests that employers have a great deal to gain from establishing a more comprehensive ongoing dialogue with employees about the value and cost of all their benefits and compensation programs."

Workers cited health insurance, retirement savings plan matching contributions and dental insurance as the three most important benefits, with health insurance ranking as No. 1.

On a positive note, 72 percent of workers believe that the benefits they receive at work are better than, or as good as, what most other companies offer. Still, most feel the value of benefits has dropped, with 61 percent of workers reporting they are paying more for benefits but getting less or the same as they did in 2007.

The survey, conducted Jan. 7-13, 2009, with results released on March 13, 2009, drew on a national sample of U.S. adults who have employer-provided health insurance coverage and work at companies with at least 100 employees.

Workers Uncertain over Benefits Future

The study found almost half of American workers (48 percent) fear that their benefits, including health insurance, retirement savings plans and pension plans, won't be provided by their employer 10 years from now. Specifically:

  • 30 percent of workers think they will be responsible for obtaining their own benefits by 2019.
  • 18 percent think the government will provide benefits.
  • 28 percent think employers will still provide benefits.
  • 24 percent are not sure.

Yet workplace benefits are viewed as so critical by employees that one out of four said they are working more to receive the accompanying benefits than to receive the income.

One out of four is working more to receive
benefits than to receive income.


Despite many employees foreseeing a future in which health care and other benefits would not be tied to their employer, eight out of 10 still would opt to have health care benefits provided through their job rather than receive a cash payment to manage their health care needs. (Employers, for their part, are also uncertain about the shape of things to come; see U.S. Employers Less Confident in Future of Health Benefits.)

Unemployment Fears and Lost Benefits

When asked what their top concern would be if they were to lose their job, U.S. workers responded:

Being able to pay their rent or mortgage

57 percent

Losing health care insurance

25 percent

Paying for other living expenses, including child care

6 percent

Paying off debt

6 percent

Being forced to tap their retirement savings

3 percent

Expressed no concerns

2 percent

Paying or saving for college

1 percent

Source: Fidelity Investments' consulting services, Worker Sentiment Study.

Company Match Ups 401(k) Participation

Offering a company match in a 401(k) plan increased worker participation in the plan by as much as 9 percent, a separate Fidelity report shows. The existence of a match also influenced how much an employee contributed — almost one third of employees contributed at the same level as the match to maximize the match rate.

The research, based on Fidelity data from over 7,000 plans, was conducted from September through November 2008 using data from the preceding year and released on Feb. 28, 2009. It shows that, on average, offering a company match of at least 50 percent on every dollar of participants' contributions, up to 6 percent of pay, or what equates to 3 percent of the participants' salary, drives increased worker participation in plans by as much as 9 percentage points. Adding immediate vesting, which provides employees with full entitlement to all plan contributions with no waiting period, was found to increase worker participation by another 2 percentage points.

"Many employers, both small and large, are facing tough decisions about employee benefits in this economic environment," says Scott B. David, president of Fidelity Investments’ workplace investing business, in the report. "We know that when companies eliminate the match to their workplace savings plans, almost half see a decrease in participation and deferral rates."

This research shows that "the very existence of any company match, even a small one, incents employees to participate more in their workplace plans, and those participation rates increase further in plans with more generous match programs," David adds. "And if this research can help inform employers who may be considering suspending their corporate match to better understand the impact of that decision, and possibly consider alternatives such as reducing the company match vs. eliminating it, then we might be able to keep more workers on the right path in their retirement savings efforts."

Biggest Impact on Workers in Their 30s and 40s

The research showed that the provision of a company match has the biggest impact on workers in their 30s and 40s, increasing their participation rates by 9 percentage points.

401(k) Match Spurs Higher Participation Rates

401(k) Plans with a Company Match

401(k) Plans with No Match

Workers in their 30s

61% participation rate

52% participation rate

Workers in their 40s



Workers in their 50s



Source: Fidelity Investments' workplace investing business.

For workers in their 60s, the increase was minimal because participation rates tend to peak with this age group as they are most focused on retirement. The company match had little to no impact for workers in their 20s because they are the least focused on retirement and most influenced by automatic enrollment.

"Workers in their 30s and 40s are often challenged with multiple savings needs — whether it's saving for a child's college education, buying a first home or supporting aging parents," says David. "The natural tendency is to delay saving for your own retirement since it's not viewed as an immediate financial need. Yet we know from experience that the danger in delaying is that workers get behind in their savings efforts, losing out on years of tax-advantaged contributions and compounded growth opportunities that they can't get back."

Match Impact on Workers' Deferral Rates

The research found that the match rate — or the minimum that the employee has to defer in order to get the full company match — has a strong influence on workers' deferral rates. About 30 percent of participants enrolled in their workplace plan deferred the same amount as the company match rate, enabling them to take full advantage of the company match.

Ways to Optimize Plan Design

Fidelity suggests companies consider the following plan design recommendations which can provide cost efficiencies for employers while maximizing retirement savings benefits for workers:

  • To get the maximum savings rate with no match, employers should make the plan available immediately to new hires, with auto increase and auto enrollment at a 6 percent deferral rate.

  • To get the maximum savings rate with a match, employers should make the plan available immediately to new hires, match at least 50 cents on the dollar and enable workers to be vested immediately, with auto increase and auto enrollment at a 6 percent deferral rate.

  • Before moving to a full match suspension, employers might want to consider alternative cost-savings approaches such as:
    • Change the match formula.

    • Limit the population eligible to receive the company match, (e.g., limit participation to specific groups, such as lower-compensated employees, etc.).

    • Redefine what it means to be eligible for the match. (e.g., include an annual "hours" requirement, such as "must work at least 1,000 hours each year" to receive the match, or be "employed on the last day of the year" in order to receive an annual match).

    • Consider moving to a discretionary match for more funding flexibility. This enables employers to change the match at any time.

    • Modify the frequency of the company match contribution (e.g., contribute to employee plans on a quarterly basis instead of monthly or weekly).

Stephen Miller 
is an online editor/manager for SHRM.

Quick Link:

SHRM OnlineBenefits Discipline

Related Articles:

Three Out of Five Employers Maintain 401(k) Match Despite Recession, SHRM Online Benefits Discipline, March 2009

60 Percent of Older Workers Postponing Retirement, SHRM Online Benefits Discipline, March 2009

Six-Year Study of CDH Plans Quantifies Savings for Employers, SHRM Online Benefits Discipline, March 2009

U.S. Employers Less Confident in Future of Health Benefits, SHRM Online Benefits Discipline, March 2009

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