Growth in Employee-Benefit Plans by ALFRED M

Home , Employee benefits, Wages and salaries

Growth in Employee-Benefit Plans by ALFRED M. SKOLNIK and JOSEPH ZISMAN*

Employee-benefit plans in recent years have shown striking private agencies) or exclusively by advances in the number of employees covered and in the amounts nonpublic agencies, there has been expended for contributions and benefits. To what extent have little tendency for individual employ- these advances outpaced the growth in the Labor force and the ers or insurers to deviate from the rise in the wage scale? Do they represent a real improvement for statutory pattern. Statutory provi- the individual worker in the adequacy and scope of the pro- sions for employer’s liability (for rail- tection provided? This article, in addition to presenting road and certain maritime workers, statistical data on employee-benefit developments for 1954 and for example) have shown similar de- 1956, throws some light on these questions. It also considers velopments. Consequently, these ben- the growth of private pension plans, which increasingly provide efits have traditionally been regarded benefits supplementary to old-age, survivors, and disability as outside the purview of “fringe” insurance. benefits, which are normally sponsored or initiated by employers and MPLOYEE-benefit plans contin- programs-such as old-age, survivors, employees? ued to grow in 1956 as a sig- and disability insurance, unemploy- The use of the term “private” E nificant element in the eco- ment insurance, and the railroad re- in describing employee-benefit plans nomic security structure that has tirement system-that are applicable sometimes leads to the inference that developed in the last quarter of a on a compulsory basis to the labor the plans are confined to employees century to meet the contingencies of force in general or to specific cate- in private industry. Many govern- old age, death, accident, disability, gories in the labor force. mental jurisdictions, however, have unemployment, and the costs of A difficult question relates to the made special provisions-as employ- medical care. Coverage, contributions, treatment of those private em- ers-for certain groups of govern- and benefits under employee-benefit ployee-benefit plans, sponsored and ment employees. Moreover, most of plans all showed sizable increases underwritten by nongovernmental the available data on such employee- from 1954, the latest year for which srganizations but written in com- benefit plans as group life, hospitali- data were published in the BULLETIN.~ pliance with State temporary dis- zation, and medical care insurance Employee-benefit plans have to a ability insurance laws. In other do not readily permit a distinction large extent developed side by side series published in the BULLETIN, to be drawn between plans for gov- with social insurance and other gov- the benefits paid under such ernment employees and those in pri- ernment measures for economic se- plans are included with social insur- vate industry. In this article, no at- curity, especially in the last decade. ance expenditures, since they are tempt is made to separate or omit For this reason, there has not always compulsory under State law. In this the data on government employees been a clear-cut distinction between article, such disability benefit plans except for those specific plans, such those programs or parts of Programs are treated as private plans because as retirement and sick-leave plans, that might be categorized as em- their omission would distort the where the government in its capacity ployee-benefit plans and those that relative extent and nature of the as an employer pays benefits directly might more properly be considered protection existing through private to its employees. as social insurance or related meas- arrangements against the risk of ures. In this article, the term “em- nonoccupational disability and also Trends, 1954-56 ployee-benefit plan” has been used to because their benefits tend to be Notable advances in coverage, con- denote any type of plan sponsored or somewhat higher than the statutory tributions, and benefits took place initiated unilaterally or jointly by requirements. during the period 1954-56. Coverage employers and employees and pro- Workmen’s compensation and pay- for life insurance, for example, in- viding benefits that stem from the ments under employer’s liability, -- employment relationship and that 21n recent years, with the maximum which are omitted from the data, in- benefit provided for occupational disability are not underwritten or paid directly volve still other considerations. His- under workmen’s compensation generally by government (Federal, State, or torically, workmen’s compensation lagging behind both wage levels and bene- local). These plans are often termed has developed as a social insurance fits for nonoccupational disability under “private” employee-benefit plans to employee-benefit plans, some employers program, with statutory application have made provisions for supplementing distinguish them from those public in all States to the general labor the statutory workmen’s compensation force. In a number of States, work. benefits. To the extent that these supple- * Division of Program Research, Office of men’s compensation benefits are paid mentary payments are not segregated from the Commissioner. by public agencies. In the States the payments made for nonoccupational 1 See Joseph Zisman, “Private Employee- illness, they are included in the data un- Benefit Plans Today,” Social Security where they are underwritten on a der “temporary disability (including Bulletin, January 1957. competitive basis (between public and formal sick leave) ” payments,

4 Social Security creased by 22 percent, contributions For every type of employee benefit, ment insurance programs, the flrst by 34 percent, and benefits by 36 growth in coverage kept ahead of plans called for contributions to be- percent. Tables 1, 2, and 3 show the the ‘growth in the labor force. In gin in June 1955 and benefits in trends for various types of employee the case of temporary disability and June 1956. Expanding into the glass, benefits. retirement benefits, the difference rubber, metal, steel, and maritime was slight, but for surgical and med- industries, supplemental unemploy- Coverage ical benefits and life insurance the ment benefit plans covered an esti- At the end of 1956, hospitalization rate of growth was considerably in mated 2 million workers or 4 per- and life insurance were still the most excess of that for the labor force. cent of the private labor force by common types of employee protec- Fifty-nine percent of the wage and the end of 1956. tion, covering some 35.5 million em- salary labor force, for example, was ployees (table 1) . Surgical expense covered for surgical expense at the Contributions insurance was a close second, with end of 1956, compared with 53 per- Employer and employee contribu- 33.1 million covered employees. In cent in 1954; 40 percent had medical tions to employee-benefit plans to- addition, hospital expense insurance expense protection in 1956, compared taled an estimated $8.7 billion in covered 53.5 million dependents, and with 32 percent in 1954. 1956, an increase of 27 percent from surgical expense insurance 49.0 million. The a-year period saw the intro- the 1954 estimate of $6.8 billion The greatest increase from 1954 duction on a large scale of one new (table 2) . Of the $1.9 billion increase, to 1956 in the number of employee major type of employee-benefit plan private retirement plans were re- participants was reported for life in- -supplemental unemployment bene- sponsible for the greatest share ($0.7 surance and for plans affording med- fits-resulting from union-industry billion), with hospitalization ($0.4 ical expense benefits. Both types of negotiations in the automobile indus- billion) and life insurance ($0.25 plan increased their employee cover- try. Designed to supplement the un- billion) ranking second and third. age by more than 5.5 million. An employment benefits provided workers Percentagewise, the greatest gain- increase of 5.3 million was recorded through the Federal-State unemploy- other than that in major medical ex- in plans providing surgical benefits and one of 4.4 million in hospitaliza- Table 1 .-Estimated number and percentage of wage and salary worki>= tion plans. their dependents covered under employee benefit plans, 1 by type of benefit, Except for the new and rapidly December 31, 1954 and 1956 expanding field of major medical expense insurance, which showed an Covered em- Numbers (in millions) Illoyees as per- increase in employee coverage from I cent of wage less than a million in 1954 to 3.6 and salary Type of benefit 1954 1956 labor force 2 million in 1956, the greatest percent- IL- age gain occurred in medical expense Em- De- Em- De- coverage-33 percent. Other types of Total ploy- pend- Total Ploy- 1954 1956 ees ents ees %ttm employee protection showed smaller __- rates of increase, ranging from about Life insurance and death benefits a--.- 30.9 29.8 1.1 37.7 35.5 2.2 56.7 62.8 10 percent in temporary disability in- Accidental death and dismember- rnenta~~~~~-~-~~~~_.~-~~-.---~~~~. 14.0 14.0 ___._.. 17.3 17.3 _ _ _ _. _. 26.6 30.6 surance plans to 24 percent in group Hospitalization 5______. .______75.3 31.1 44.2 89.0 35.5 53.5 59.1 62.8 accidental death and dismemberment Surgicala _____.--- ..____._._. ._._____ 66.2 27.8 36.4 82.1 33.1 49.0 52.9 58.6 Medicals...... -...... -.---.-.---.- 38.1 17.0 21.1 54.G 22.6 32.0 32.3 40.0 insurance. Even larger percentage Major medical expense 5____._. -.--__. 1.9 .8 1.1 8.3 3.6 4.7 1.5 6.4 gains were recorded in the number Supplemental unemployment bene- fitse.-...-.------...-- ______-_-_-__, 2.0 2.0 ‘4.1 of dependents covered, with the great- Temporary disability (including for- est growth reported in the relatively malsickleove)s- .___ _... -._.-__. 22.9 22.9 .._____ 25.2 25.2 ______. ’ 50.3 7 51.5 Retirements...-.-..--.-.-.-.------13.1 13.1 ____ -__ 15.2 15.2 _-___.. ’ 28.8 ‘31.1 new fields of major medical expense - and dependents’ life insurance. 1Plans whose benefits flow fromithe employment medical coverage include employees and their Perhaps of more significance than reletionship and are not underwritten or p&id dependents covered by group major medical ex- directly by government (Federal, St&e, or locrrl). pe%e insurance under both- supplementary and the growth in numerical coverage is Excludes workmen’s compensation rewired bv comprehensive plans. Comprehensive major medi- the ‘growth in the proportion of the statute and employer’s liability. cal plans, which include both basic hospital-surgical- 2 Average number of full-time and part-time em- medical benefits and major medical expense pro- wage and salary labor force covered ployees-52.6 million in 1954and 56.6 million in tection in the same insurance contract, covered 1956(Snwey 01Current Busineaa,July 1957,table 26). 22,000 employees and 29,009 dependents in 1954; by employee-benefit plans. For those 3 Qroup and wholesale life insurance coverage 551,000employees and 862,000dependents in 1956. types of benefits for which data for (Life Insurance Association of America, (froup 0 Based on trade-union and industry reports. Insurance and cfroup Annuity Coverage, 1954and Excludes dismissal wage and separation allowances. government employees are included, 1956)and self-insured death benefit plan coverage 7 Computed as percent of private wage and salary (based on data for various trade-union, mutual labor force (45.5 million in 1954and 48.9 million in table 1 relates coverage to the entire benefit association, and company-administered 1956). wage and salary labor force. For plans). (u.8Data from the Health Insurance Council (see 4 Data from the Life Insurance Association of footnote 5). Includes private plans written in com- retirement, temporary disability, and America (seefootnote 3). pliance with State temporary disability insurance supplemental unemployment benefits, 5 Data from Extent of Voluntary Health Insurance laws in California, New Jersey, and New York. Coverage in the United States (Health Insurance 9 Estimated by the Division of the Actuary, Social which exclude data for government Council, 1954and 1956)and from the Life Associa- Security Administration. Represents pay-as-you- tion of America (see footnote 3). In estimating go and deferred profit-sharing plans, plans of non- employees, coverage is related to the number of employees covered under plans other profit organizations, and railroad plans supple- wage and salary labor force in pri- than group insurance and union and company menting the Federal railroad retirement program; plans, 75 percent of all subscribers assumed to be excludes annuitants. vate industry. employees. Data for hospitalization, surgical, and

Bulletin, March 1958 5 pense insurance-was in premiums for care expense, which rose from 3’7 and hospitalization plans took 18 per- accidental death and dismemberment cents to 41 cents per $100, and for cent in 1956. The explanation, of and life insurance (48 percent and 34 major medical expense, where the in- course, lies in the fact that long-term percent, respectively). crease was from 1 cent to 4 cents retirement plans, most of which are Table 2 also shows the magnitude per $100. In 1956 estimated contri- of recent origin and not yet matured, of the contributions in relation to butions of $125 million to supple- the total wage and salary bill of the mental unemployment benefit plans amounted to 7 cents per $100 of the Table 3.-Estimated benefits paid Nation. The same procedure is fol- under employee-benefit plans, 1 by lowed as in table 1; contributions aggregate private payroll. type of benefit, 1954 and 1956 are related either to all wages and [In millions] salaries or to wages and salaries in Benejits private industry only, depending on From 1954 to 1956, benefits paid Type.of benefit 1954 1956 whether the type of benefit includes under employee-benefit plans jumped I__- I or excludes government employees. from an estimated $3.5 billion to $4.8 Total ___.._._.___.__...... -.- -/$3,512.01$4,833.8 Contributions as a percent of ag- billion, an increase (38 percent) Life insurance and death benefits 2. 534.1 728.3 greater than that for contributions Accidental death and dismember- gregate wages and salaries showed ment3.---..---....--.--....-~ 25.1 30.5 (table 3). Hospitalization benefits of Hospitalizationr._-..- ._.___-..-.. 1,079.g 1,;49;:; increases for all major types of bene- Surgical and medical a.-.- 552.6 ilts except temporary disability. For $1.5 billion were the largest single Major medical expense5- _ -_. 10.0 67.0 retirement benefits, the single largest benefit outlay in 1956 and accounted Supplemental unemployment for 31 percent of all benefits paid. benefits e... .__.______...... ~-. . .._. 5.0 contribution item, employers and em- Temporary disability (including ployees raised their combined contri- Private retirement benefits of $950 formal sick leave) 7______.._ _ 640.3 799.7 butions from $2.08 per $100 of pri- million were next in magnitude and Retirement a..- _____._.-- ______-_. 673.0 950.0 vate wages and salaries in 1954 to accounted for 20 percent.3 $2.13 in 1956-an increase of 5 cents This relationship is the reverse of per $100. Greater increases were that found with respect to contribu- registered in the proportions of wages tions, where retirement plans ab- and salaries allocated for hospitaliza- sorbed 46 percent of all contributions tion (a rise of 8 cents per $100) and for life insurance (6 cents per $100). 8 If benefits paid under public employee Smaller contribution increases were retirement plans were included, total retirement benefits would have exceeded reported for surgical and medical hospitalization benefits.

Table 2.-Estimated to_tal fmplcy$r and employee contributions 1 under employee-oeneflt plans, a oy type of benefit, 1954 and 1956

As percent of aggregate Amount (in millions) wages and salaries 8 Type of benefit ~-- 1954 1956 1954 1956 ___~ Totitl..______.__-.-....--.---.------.- $6.838.6 $8,691.2 ._..._...... _..._._.______~___ Life insurance and death benefits 4 ______-_----___- 741.1 994.8 0.48 0.54 Accidental death and dismemberment ~.~~~~----~~~---~- 33.5 49.7 .a2 .02 Hospitalization 6. . . ..______. 1,221.4 1,603.Z .66 .74 8 Estimated by the Division of the Sctuary, Surgical and medical 6.______.______. 684.2 897.5 .37 .41 Social Security Administration. Represents bene- Major medical expense 7_...... _...... _..______18.0 94.0 .Ol .a4 fits paid under pay-x-you-go and deferred profit- sharing plans, plans of nonprofit organizations, and Supplemental rmemployment benefits *._..____ -_------__ ..__ --.-.-.- 125.0 .- _____.-.-. 9 .a7 railroad plans supplementing Federal railroad Temporary disability (including forms1 sick leave) 10..__ 780.4 897.0 9.48 9 .47 Retirement II--...-...... ---.--...... --.-----.....-..-... @irement program. 3,360.O 4,030.o Q2.08 9 2.13 L1

1 Excludes dividends in group insurance, except for employees under plans other than group insurance for 1954 contributions for temporary disability, and union and company plans, 75 percent of sub- have a substantially greater income hospitalization, surgical and medical, and major scription income attributed to employed groups. than outlay in their early years be- medical expense benefits. 7 Unpublished data from the Life Insurance As- 2 Plans whose benefits flow from the employment sociation of America. Includes Dremiums for WOUD cause of the necessity of building UP relationship and are not underwritten or paid supplementary and comprehensive major medical directly by government (Federal! State, or local). insurance. reserves for future benefits. Hospital Excludes workmen’s compensatmn required by 8 Based on trade-union and industry reports. and medical care plans, in contrast, statute and employer’s liability. Excludes dismissal wage and separation allowances. 8 Private and government wage and salary dis- 9 Computed BS percent of private wages and need only small contingency reserves bursements-$185.6 billion in 1954and $217.5billion salaries ($161.2billion in 1954and $189.4billion in in 1956(Swoey of Cwrent Business, July 1957,table 1956). for short-term benefits and expend 15). 10Data from “Qrowth in Protection Against In- much more of their current income 1 Qroup and wholesale life insurance premiums come Loss From Short-Term Sickness,” Social (Life Insurance Association of America. arouz) Security Bulletin, January 1958. Includes private for benefits. insurance and ar0up Annuity Coverage, i954 a& plans written in compliance with State temporary 1956) and self-insured death benefit costs (based disability insurance laws in California, New Jersey, Except for major medical expense on data for various trade-union, mutual benefit and New York. association, and company-admimstered plans). 11Estimated by the Division of the Actuary, benefits, retirement benefits showed 5 Data from Life Insurance Association of America Social Security Administration. Represents con- the greatest percentage increase-42 (seefootnote 4). tributions to pay-ss-you-go and deferred profit- 6 Data from “Voluntary Health Insurance and sharing plans, plans of nonprofit organizations, and percent-from 1954 to 1956. Hos- Medical Care Costs, 1948-56,”Social Security Bul- railroad plans supplementing Federal railroad re- &in, December 1957. In estimating contributions tirement program. pitalization benefits increased 39 per-

6 Social Security cent, and surgical and medical care eralization of the benefit provisions.4 covered in late 1955.6 In contrast, a benefits 37 percent during this period. A similar analysis with respect to study by the New York State Depart- Benefits for temporary disability surgical and medical benefits (includ- ment of Labor showed that only 36 showed the least expansion-about ing these benefits under major med- percent of the workers under cash 25 percent. ical) showed that, of the increase of indemnity plans in that State had 70 In 1956, benefits under major med- about 42 percent in aggregate pay. or more days of coverage in June ical expense insurance, sometimes merits, at least 32 percent is due to 1954.’ called “catastrophe” insurance, were growth in numbers covered and to Rates charged by hospitals for almost seven times what they had price changes. room and board rose almost universal- been in 1954, although they accounted ly from 1954 to 1956. The average for only a little more than 1 percent Health BeneJits and Services rate for a two-bed room (typically provided in service benefit plans) in of all benefits paid under employee- The measurement of real growth large hospitals in 1954 was $14.47; benefit plans in 1956. As one of the in the area of hospitalization bene- by 1956 the rate was $15.29. latest types of employee benefits to fits is complicated by the fact that Changes reported in employee-ben- be introduced, major medical ex- about half the employee coverage is pense insurance is expected to con- derived from service benefit plans efit plan provisions negotiated by tinue to make rapid strides in the that, by their nature, tend to follow employers and trade unions during 1954-56 * included numerous in- coming years. rises in hospital costs without too much lag. For the cash indemnity stances where the daily allowance for hospital room and board was Measuring Real Growth benefits available to the other half raised from $10 to $12 or from $12 Questions are often raised concern- of the employees covered, however, ing the extent to which rising con- there tends to be an appreciably to $15. According to data gathered by the Life Insurance Association of tributions and benefits paid under greater gap between payments and America, the average daily allowance employee-benefit plans represent real rising costs. This same type of differ. provided for employees by group hos- gains for individual employees, in ence in the relationship of payments pital plans in force that were under- terms of the scope and adequacy of and rising costs exists between plans written by commercial insurance car- the protection furnished. In other covering full surgical costs and cash riers was $10.26 for 1956, compared words, what portions of the increase indemnity plans with fixed schedules in aggregate expenditures for em- for surgical fees. with $9.17 for 1954.9 The Bureau of Labor Statistics study of union- ployee benefits are explained by (1) In terms of real growth in protec- negotiated plans shows the average growth in the number of employees tion, however, the longer hospital maximum daily benefits provided un- covered by plans, (2) inclusion of stays permitted are significant under der cash-benefit hospital plans in larger proportions of dependents, (3) either service or indemnity plans. An late 1955 as $11.12 for employees and increased cost of providing the same examination of the plan provisions $10.31 for dependents. amount of benefits, and (4) liberali- as described in the Blue Cross Guide The increase in allowances for hos- zation of benefits that increases the reveals that from 1954 to 1956 the pital “extras,” either fully paid by real value or quantity of the protec- maximum duration of hospitalization the plan or coinsured by the em- tion? provided has tended to increase from ployee, parallels increases in the Hospitalization benefits, for ex- 30 days to 70, 90, and even 120 days. daily allowance for room and board ample, which increased in the aggre- A recent National Industrial Confer- and like them reflects the fact that gate 38.5 percent from 1954 to 1956, ence Board report shows that, in hospital charges have gone up. The showed only a 19.0-percent increase early 1956, 83 out of 143 employee- National Industrial Conference Board when measured in terms of beneflts benefit plans studied were providing reported that ‘78 of the 123 plans per participant. This percentage in- at least 70 days of hospitalization and paying cash benefits provided $150 crease is less impressive when the that 31 were providing 120 or more or more in allowances for extras such rise in the cost of hospital care dur- days.5 According to a Bureau of ing the 2 years is considered. The Labor Statistics study of 180 union- consumer price index of the Bureau negotiated plans paying cash hospital 6U. S. Department of Labor, Bureau of of Labor Statistics shows a rise of benefits throughout the country, the Labor Statistics, Analysis of Health and 10.5 percent in hospital room rates maximum duration was 70 or more Insurance Plans Under Collective Bargain- from 1954 to 1956. If this increase days for 46 percent of the workers ing, Late I955 (Bulletin No. 1221), 1957. is indicative of hospitalization prices TNew York State Department of Labor, Health and Welfare Benejits in New York in general, then only 8.5 percent out State (Division of Research and Statistics of the 38.5-percent increase in aggre- 4 For a general discussion of the inter- Publication No. B-83), December 1955, page gate benefit payments for hospitaliza- relationship of per capita medical expendi- 53. tion can be said to relate to addi- tures, price changes, and patterns of 8 IJ. S. Department of Labor. Bureau of spending for medical care, see “Voluntary Labor Statistics, Current Wage Develop- tional services received by insured Health Insurance and Medical Care Costs, ments, monthly issues; and “Significant persons. The pattern of utilization 1948-56,” Social Secusity Bulletin, Decem- Pay Settlements,” published monthly in of hospital services, however, is con- ber 1957. Management Record (National Industrial stantly changing. It is therefore dif- 6 Harland Fox, Trends in Company Conference Board). ficult to determine what part of the Group Insurance Programs (National In- 0 Life Insurance Association of America, dustrial Conference Board, Studies in Group Insurance and Group Annuity 8.5-percent increase signifies a lib- Personnel Policy No. 159). 1957. COveTage, 1954 and 1956.

Bulletin, March 1958 7 as drugs and serums, various diagnos- ability, death, or retirement, it is 2 years, it is evident that increases tic procedures, and the use of special less easy to distinguish between that in benefit amounts were mainly de- equipment. Of the 78 Plans, 26 proportion of the aggregate increase in signed to take care of advancing vided allowances ranging from $100 benefits devoted to keeping up with wage rates. to $315, plus 75 percent of the next wage levels and that portion repre- Other features of group disability $500-$4,580 of expenses. senting real gains in the scope of insurance plans, according to avail- The amounts allowed in employee- the protection provided. able data, showed no appreciable benefit plans for surgical and medi- In the case of temporary nonoccu- changes from 1954 to 1956. The tend- cal benefits have also tended to rise. pational disability, some insight into ency to extend the duration of bene- According to the 1955-56 studies of this problem may be obtained by fits or to liberalize waiting periods both the National Industrial Confer- using the procedures developed by received no special impetus in this ence Board and the Bureau of Labor the Division of Program Research in period. The amendment to the New Statistics, half the plans provided its annual series on income-loss pro- York temporary disability insurance maximum surgical allowances of $250 tection against sickness.10 Relating law that extended the duration from or more. Data for group insurance the amounts paid under employee- 13 weeks to 20 weeks went into effect companies show that the average benefit plans to the income lost by on July 1, 1956, and apparently is not maximum surgical benefit for em- covered wage and salary workers fully reflected in current studies of ployees rose from $219 in 1954 to gives a rough measurement of the disability plans. $234 in 1956. Reports of negotiated extent to which benefits actually im- Supplementation of workmen’s changes show frequent increases in proved. Use of this method shows compensation generally up to the the fee schedule from $200 and $250 that cash sickness benefits paid un- level of the benefit paid for nonoccu- to $250, $300, and higher for the most der private plans (including formal pational disability has been increas- costly procedures. The extent to sick-leave plans) replaced 27.6 per- ingly provided for in collective bar- which these increases in fee sched- cent of the gross income loss of work- gaining agreements. The Bureau of ules have occurred in recognition of ers covered by such plans in 1954 and Labor Statistics study shows that in already existing increases in physi- 28.6 percent in 1956. late 1955 about one-fifth of the plans analyzed contained provisions of this cians’ and surgeons’ charges and the National Industrial Conference nature. The effect on aggregate ben- extent to which they produce actual Board studies of company disability efit payments, however, has been improvements in the workers’ pro- plans11 in mid-1953 and the first slight, since only about 5 percent of tection vary from place to place. quarter of 1956 show general in- all illnesses are work-connected and Even apart from the rapid spread of creases in the size of benefits. The benefits paid in such instances rep- major medical insurance, there has 1956 analysis of company plans pro- resent only the difference between the been an increase in the frequency of viding employee benefits that were statutory workmen’s compensation provisions for reimbursements of graduated on the basis of employee payment and the nonoccupational physicians’ fees for visits to his office earnings indicates that the weekly disability payment. or for his calls to the patient’s home disability benefit in the median com- There is also evidence of a grow. in addition to fees for physicians’ pany was equal to half pay for work- ing tendency to use formal sick-leave visits at the hospital. At the same ers earning up to $80 a week. In 1953, plans as a means of supplementing time the extension of hospitalization, only weekly earnings of less than $75 accident and sickness benefits under surgical, and other medical benefits were compensable at half pay. Week- to retired employees and their de- a group insurance plan. National ly benefits payable under flat-sum Industrial Conference Board studies pendents has continued. programs increased from an average show that in early 1954 about 25 per- It is apparent that many of the of $30 in 1953 to $34 in 1956. Ac- cent of the firms surveyed provided developments outlined above, such as cording to the Life Insurance Asso- both sick leave and group insurance increased allowances for hospitaliza- ciation of America, the average week- benefits for salaried employees, com- tion and surgical expenses, were mo- ly benefit for all group disability in- pared with 32 percent in early 1956.12 tivated by the need to keep existing surance policies in force in 1956 was Firms with dual benefits for hourly benefits abreast of the increased cost $33.27-10.4 percent higher than the employees increased from 9 percent of medical care. On the other hand, 1954 average of $30.13. Since gross to 18 percent. The Community Wage increases in the maximum duration average weekly earnings of produc- Studies of the Bureau of Labor Sta- of hospitalization benefits, the addition workers in manufacturing indus- tisticsls also show the increased scope tion of provisions for physicians’ serv- tries rose by 11.3 percent during the ices at the home or office and for meeting the cost of catastrophic ill- 12 Harland FOX, Company-Paid Sick 10 See “Growth in Protection Against In- nesses, and the extension of benefits, Leave and Supplements to Workmen’s come Loss From Short-Term Sickness,” Compensation and Trends in Company to some degree, to retired employees Social Security Bulletin, January 1958. Group Insurance Programs (National In- and their dependents are distinct im- 11 Lois E. Forde, “Group Disability Insur- dustrial Conference Board, Studies in provements in existing programs. ante Plans: A Study of Current Group In- Personnel Policy, No. 146, 1954, and No. surance Program Points UP the Trend to 159. 1957). l’emporary Disability Benefits Greater Coverage and Larger Benefits,” *U. S. Department of Labor, Bureau of Management Record (National Industrial Labor Statistics, Wages and Related Bene- For those types of benefits designed Conference Board), March 1954; and Fox, fits, 1953-54 and 1955-56 (Bulletins No. 1157 to replace income lost because of dis- op. cit. and No. 1188).

8 Social Security of coverage provided by sick-leave sumed 47 percent of the costs of cent were financed entirely by em- plans, primarily for office workers. health and welfare benefits texclud- ployees. The contributory Plans in- ing retirement benefits) .I4 Though cluded 47 percent of the employees Life Insurance the change since 1954 is difficult to whose dependents were covered, and For group life insurance, it is most measure from existing data, reports the plans financed entirely by the em- meaningful to measure changes in of negotiated changes show that in- ployees, 12 percent. real protection in terms of the face creases in the share of the cost borne by employers may take one or more Trends in Retirement value of the group insurance policies. Plans, 1930-56 As reported by the Life Insurance of the following forms: (1) assum- Association of America, these ing all or a greater share of the Because provisions for retirement in- amounts increased in the aggregate costs of increased benefits; (2) as- volve long-range considerations, the by 35.6 percent from 1954 to 1956 suming some or all of the cost of data on private retirement plans do for all employee policies in force. benefits for dependents; (3) assuming not readily permit a statistical evalu- The average amount of insurance per a greater share of t,he costs of exist- ation of growth over a short period ing benefits; (41 converting a con- employee certificate, however, rose of time. To get a better perspective tributory plan (or parts of such a only 12.5 percent, from $3,120 to of developments in the field of pri- plan) to a noncontributory plan; and $3,510. This increase has more than vate pension plans, a historical an- (5) assuming all or a greater share alysis is presented in the following kept pace with the 9.Spercent rise in of the cost of benefits for retired paragraphs. An analysis going back average annual earnings during the employees. to the 1930’s has pertinence because 2 years. According to the National Indus- of the relationship that has devel- Although both the National Indus- trial Conference Board, 41 percent of oped between private retirement trial Conference Board and the Bu- the group accident and sickness plans plans and the Federal program of reau of Labor Statistics studies show studied in early 1956 were noncon- old-age, survivors, and disability in- that about 7 out of 10 plans paying tributory, compared with about 38 surance initiated in 1935. flat benefits provided less than $3,000 percent in early 1954.15 For basic The past quarter of a century has of insurance per employee covered, hospital-surgical-medical benefits for the plans with benefit amounts grad- witnessed a remarkable growth in employees, noncontributory arrange- the coverage and resources of private uated in accordance with the em- ments prevailed in 39 percent of the ployee’s wages were more liberal, and retirement plans. Since 1930, accord. plans reviewed in 1956 and in about ing to the estimates developed by the they included the larger plans. For 36 percent in 1954. Only about 10 employees earning $4,000 a year, ap- Division of the Actuary, coverage percent of the plans were financed under private pension and deferred proximately four-fifths of the plans entirely by employee contributions in provided insurance protection equiv- profit-sharing plans has increased 1956 and about 17 percent in 1954. from 2.4 million to 15.2 million, con- alent to at least a year’s salary. One- tributions from $180 million to $4,030 fourth of the plans in the BLS study Despite the trend toward increasing financial participation by the em- million, the number of beneficiaries and one-third of those studied by from 90,000 to 1,160,000, and benefits the National Industrial Conference ployer, the BLS study shows that, in Board provided insurance equal to late 1955, 46 Percent of the 300 union- from $80 million to $950 million negotiated health and welfare plans (table 4). Reserves accumulated un- at least 1% year’s salary. Approxi- examined, which included 55 percent der the plans rose from $0.8 billion mately 15 percent in both studies of covered employees, were financed to $29.9 billion. This growth, al- provided insurance protection equal- though attributable in part to Fed- ing at least 2 years’ wages. Reports jointly by the employers and employ. ees as far as employee benefits were eral tax policy, has been accelerated of negotiated changes in employee concerned.16 With respect to de- by the Government’s wage stabiliza- benefits show frequent increases tion programs during World War II ranging from $500 to $2,000. The pendents’ coverage, 39 percent of the and the Korean conflict. The spec- trend toward covering retired em- plans were contributory and 18 per- tacular rise in coverage and resources ployees is continuing. 1.4U. S. Senate, Committee on Labor and since 1950 can also be traced to the Public Welfare, Welfare and Pension Plans widespread adoption of private pen- Financing Investigation: Final Report . Submitted sion pla,ns in mass-production indus- by Its Subcommittee on Welfare and Pen- tries, following the decisions of the Revisions in the benefit structure sion Funds (S. Rept. 1734, 84th Cong., 2d were not the only changes made in sess., 1956). courts and the National Labor Rela- employee-benefit plans during 1955 15 Harland Fox, “Company Group Insur- tions Board that pension and welfare and 1956. Even when there were no ance-Who Pays the Bill,” Management plans are proper subjects for collec- benefit improvements or when the Record (National Industrial Conference tive bargaining. Board), November 1954, and “Financing benefits merely kept pace with the Group Insurance Programs,” Management increased costs of medical care or Record, April 1957. Coverage with the rise in wage levels, many 1.6Plans were classified as jointly financed At the end of 1956, private retire- employees gained some advantage as if the employee contributed toward the ment plans covered an estimated 15.2 cost of one or more of the benefits of the employers increasingly assumed a group specified or if the employer con- million employees, or more than 31 greater share of the benefit costs. In tributed only a part of the cost of the percent of the private wage and sal- 1954, it was estimated, employers as- benefits. ary labor force. Practically all these

Bulletin, March 1958 9 employees were also covered by the fornia a plan was initiated in 1954 dulum began to swing in the other Federal old-age, survivors, and dis- and employers began to make con- direction. Especially since 1949, new ability insurance program. Most of tributions immediately, but the de- plans have increasingly tended to be them (‘73 percent) were covered un- tails are yet to be determined and noncontributory, and some existing der self-insured plans-that is, plans benefits are not scheduled to begin contributory plans have become non. financed through the medium of trust until 1960. This plan involves 500 contributory as they apply to the funds or pay-as-you-go and balance- employers, 40 union locals, and 18,000 lower portion of the employee’s earn- sheet reserve plans.17 employees. ings speciiied in the benefit formula As can be seen from table 4, the A new type of plan that is getting a -for example, the first $4,200. Since number of employees covered at the great deal of attention is the “vari- 1945, the employee’s share of aggre. end of 1956 was almost seven times able” annuity. A number of these gate contributions has been approxi- the number in 1930. From 1930 to plans were established during 1955 mately one-seventh. 1940, coverage increased rather slow- and 1956. Basically, this type con- During the period 1930-56 total ly. Each 5-year period since 1940, sists of two parts. The first follows contributions to private retirement however, showed gains of 50 percent the pattern of conventional plans plans increased sharply. The 1956 over the preceding period. Since 1950, and provides fixed benefits. The sec- total was more than 22 times that coverage under insured and self-in- ond provides a “variable” annuity of 1930. The most rapid rate of sured plans has increased 57.7 per- fluctuating with the current value of growth was in the B-year period cent and 73.4 percent, respectively. the securities allocated to this por- 1941-45, when they increased by more Tne growth in coverage since 1954 tion of the plan. than 234 percent. Thereafter the has been accompanied by the estab- rate of increase was relatively slower lishment of new plans of diverse Employer and Employee -112 percent for 1946-50 and 96 types, some of which may set patterns Contributions percent for 1951-56. As would be ex- for the industry in which they were More than $4 billion, it is esti- pected from the greater increase in developed. Some plans required im- mated, was contributed in 1956 by coverage, total contributions to self- mediate employer contributions but employers and employees to finance insured plans increased much faster deferred the formulation of details private retirement plans-approxi- than those to insured plans. For the and the payment of benefits for sev- mately $3,450 million by employers period 1951-56 the increases were eral years. In the hotel trades in and $580 million by employees. Dur- 131 percent and 52 percent, respec- New York City, for example, 52 hotels, ing the period 1930-56 the method of tively. The average contribution per employing 3,500 individuals, have financing appears to have made a employee, reflecting the liberalization been contributing to a trust fund complete cycle. Before 1930, plans of benefit formulas as well as the since 1952, but details as to eligibility were generally on a noncontributory rising wage levels during 1930-56, requirements and benefit amounts basis. New plans established during went up steadily from $82 a year to were not worked out until 1954, when the 1930’s, however, tended to be con- $274. During 1951-56 the increase the plan began to pay benefits. In tributory. Although employees ab- was from $245 to $274. t.he motion picture industry in Cali- sorbed less than 30 percent of the Though empIoyers in 1956 contrib. costs in 1930, by 1940 the ratio had uted approximately 85 percent of the I.7 For a description of methods of under- increased to almost 40 percent. Dur- total cost of financing the plans, their writing, see Zisman, op. cit., page 12. ing and after World War II the pen- share of contributions to self-insured

Table 4 .-Private pension and deferred profit-sharing plans: Estimated coverage, contributions, reserves, beneficiaries, and benefit payments, 193046 1 - Employcr Employee Reserves, Xumher of monthly Amount of annual contributions contributions end of year heneflciaries, end of year benefit payments (in millions) (in millions) 1 (in billions) (in thousands) (in millions) / I I I I I

1956L.. 15,200 4,100 11,100 $29.9 $12.3 1,160 330 830 $:2X& 1955.-.. 14,200 3,900 10,300 26.2 11.1 “2: Y 1,wo 290 710 % “2 1954L.. 13,100 3,7cml 9,400 22.7 9.8 12.9 850 260 590 670 170 500 1953.--. 12,100 3,500 8,Goo 19.3 8.6 10.7 730 220 510 600 150 450 195x--. 10,900 3,200 7,600 16.5 7.5 9.0 630 190 440 510 130 380 1951.... 10,000 2,900 7,100 13.7 6.4 7.3 530 170 360 440 110 330 195OL.. 9,000 2,600 6,400 11.2 5.4 5.8 440 150 290 360 90 270 1945L.. 5,9ch!l .--._-.. .-_-_.-- 5.4 _. 3M) 210 __ _ _ ,_ _. _._ _ 1940..-. 3,800 .-.-.._. .-...-_. 2.4 .._____._...__.-150 130 . _._ _ _ ,______1935L.. 2.600 ._--.._. .-_..._. 1.3 . . .._-__._.-_._. 110 100 1930.--. 2,400 ..- . .._ ..-. . .._. .8 ------I------~90 ,_.-.-.--1..- . .._.. 80 ._-__--. ______1 Represents pay-as-you-go and deferred profit-sharing plans, plans of non- * Excludes annuitants. profit organizations, and railroad plans supplementing Federal railroad retire- 3 Includes some refunds to employees, as well as lump-sum payments under ment program. In 1930,private railroad plans covered an average of 1.3million deferred profit-sharing plans. employees and paid about $30 million in benefits to about 50,000beneficiaries; in 1935they covered an average of 1.1million workers and paid about $40million 5 ource: Social Security Administration, Division of the Actuary. to about 60,000beneficiaries.

10 Social Security plans tends to be relatively larger has risen from $2.5 billion to $3.7 received in retirement benefits a total than that for insured plans; a larger billion. The reserves constitute 8 amount equal to their contributions: portion of the latter are on a con- large and growing source of invest- and (3) lump-sum payments made tributory basis. For the period ment funds. under certain conditions to beneficiar- 1950-56, employers’ contributions Approximately 41 percent of the ies under deferred profit-sharing amounted to approximately 90 per- reserves was accumulated under in- plans. Because the source of data cent of the total for self-insured plans sured plans in 1956; in 1950 the pro- from which the estimates have been and about 79 percent for insured portion was more than 48 percent. developed does not make it possible plans. These proportions seem to re- This drop, and the corresponding rise to distinguish between these lump- flect the influence of collective bar- in the proportion of reserves accumu- sum benefits and monthly retirement gaining for noncontributory pension lated by the self-insured plans, is benefits, average annual retirement plans in the mass-production indus- attributable to the fact that many benefits cannot be derived. tries, which followed the 1949 agree- self-insured plans are relatively new. Since 1950, both the number of ments with the major employers in As they grow older their assets in- beneficiaries and the amount of bene- the automobile and basic steel indus- crease in significance. It will be fits have increased at the same pace; tries. noted, for example, that assets under the 1956 totals were about two and Reports of negotiated changes dur- insured plans increased by only 128 one-half times what they were in the ing 1955 and 1956 show frequent in- percent from 1950 to 1956 but that earlier year. There was thus little creases in employer contributions to those of self-insured plans increased increase in benefit outlays per bene- jointly administered multi-employer by 203 percent. ficiary. This finding is not surpris- pension funds. The increases from 3 Since insured plans tend to be more ing, because the total amount paid percent to 4 percent in various plans fully funded, the average reserve per under private retirement plans is involving the International Ladies’ employee is much larger under in- weighted with benefits that reflect Garment Workers Union are illustra- sured plans than under self-insured earnings levels and benefit formulas tive. plans. In 1956 the average amount of earlier decades. Improvements and Increased employer contributions, per employee covered in insured expansion of benefits under private other than those resulting from ac- plans was $3,075, and under self- pension plans in any year are for tuarial factors, may result from a insured plans it was $1,645. The the most part not fully felt until reduction in employee contribution or relative difference, however, has nar- many years have elapsed. Moreover, a change from a contributory (em- rowed noticeably since 1950, when the a growing proportion of the benefi- ployer-employee joint financing) plan average reserves were $2,160 and ciaries retiring (72 percent in 1956 to a noncontributory plan. In 1955, $951, respectively. For the two types and 66 percent in 1950) were covered for example, the agreement between of plans combined the average re- by self-insured plans. These plans, a major electrical equipment manu- serves increased from $1,333 to $2,034 many of which were established in facturer and the International Union during the period. the last decade as the result of nego- of Electrical, Radio, and Machine tiations in the mass-production in- Workers reduced employee contribu- Beneficiaries and BeneJits dustries, currently tend to pay pen- tions from 2 percent on the first The number of monthly beneficiar- sions of lower amounts than do the $3,600 of annual earnings and 5 per- ies under private retirement plans has older plans. cent on the excess to 1 percent on grown steadily-from 90,000 in 1930 Some private pension plans have the first $4,200 and 4 percent on the to 1,160,OOOin 1956. Not all the cur- had their ups and downs in recent remainder. In 1958 the contribution rent beneficiaries are recipients of years, as a result of changing eco- on the first $4,200 will be eliminated, benefits under the Federal old-age, nomic conditions. The retirement and the contribution on the remain- survivors, and disability insurance plan negotiated by the United Mine der reduced to 3 percent. program. A sizable number-an esti- Workers of America for the anthra- mated 180,000-worked in noncovered cite coal industry, for example, re- Reserves employment or retired before they duced its monthly benefits early in The growth in retirement plan re- had met the age or work require- 1954 from $100 to $50 because of serves has been even greater than ments to qualify for benefits under the declining tonnage in coal mined. that in the other factors examined so the Federal program. In the fall of 1954 the pension plan far. Estimated at $800 million in Benefit payments under private re- established in 1950 in the full-fash- 1930, at the end of 1956 they tirement plans grew from $80 million ioned hosiery industry as a result of amounted to $29.9 billion, or more in 1930 to $950 million in 1956. These an arbitration award was liquidated than 3’7 times the 1930 total. Re- benefits include the following lump- because of competitive and economic serves trebled in the period 1931-40. sum payments under self-insured conditions. In the spring of 1955 During the next decade they in- plans: (1) refunds of employee con- the United Hatters, Cap and Milli- creased by almost 367 percent and tributions to individuals withdraw- nery Workers International Union since 1950 by close to 167 percent. ing from the plans before retirement agreed with the Eastern Women’s Although the yearly rate of increase and before accumulating vested de- Headwear Manufacturers Association has dropped from approximately 22 ferred rights; (2) return of employee to forego a proposed addition of 1 percent in 1951 to 14 percent in 1956, contributions to the survivors of percent to the a-percent employer the yearly increase in absolute dollars workers who died before they had contribution to the industry pension

Bulletin. March 1958 11 plan and to permit the money to be monthly benefit from $100 (including been removed as a result of negotia- used instead to promote the sale of the Federal old-age benefit) for em tions in the spring of 1955. The serv- women’s hats, with the hope that the ployees with at least 25 years of service requirement of 15 years, however, pension plan would benefit from any ice to $55 (excluding the Federal ben- was retained. In addition, the month- improvement in business. efit) for employees with 30 or more ly benefit was increased from $3.00 The relative importance of pen- years of service. In 1956 the mini- to $4.50 for each year of creditable sions for workers is illustrated by mum monthly benefit was changed, service. The deduction of “statutory two agreements. The first, made be- effective November 1, 1957, to $2.40 benefits” is still in force. Moreover, tween the United Automobile Work- for each year of service (up to 30) as in the case of old-age benefits, the ers and the American Motors Cor- before that date and to $2.50 for each period of creditable service is no poration in the fall of 1955, deferred year thereafter . This pattern was longer limited to 30 years. In the supplementary unemployment bene- also adopted in the aluminum and steel industry the minimum monthly fits for 1 year to protect the pensions canning industries. In other plans- benefit was raised in 1954 from $50 of 3,000 employees displaced as a re- the rubber industry plan, for example to $75 and again, effective November sult of the company’s merger with -alternative formulas providing a 1, 1957, to $90 (including the dis- the Hudson Motor Car Company. The flat benefit for each year of service ability benefit under the Social Se- second, negotiated by the Textile are used if the result is a benefit curity Act, up to $85), and the age Workers Union and the American greater than that derived from the requirement was reduced in 1956 from Viscose Company in mid-1956, in- offset formula. In some plans, the 50 to 40. The trend, as seen from creased retirement benefits and pro- offset formula has been replaced by the Bureau of Labor Statistics and vided for the company’s assumption one paying a flat amount for each National Industrial Conference Board of the full cost of the pension plan year of service. reports on negotiated changes, ap- effective June 1, 1956, and for the A recently negotiated plan in the pears to be toward eliminating the deferment of a wage increase to July trucking industry provides for normal age requirement. 1, 1957. retirement at age 60, with a monthly On the whole, however, the 1954- benefit of $90. When the worker Increased vesting.-Vesting provi- 56 period was marked by numerous reaches age 65 and becomes eligible sions, which transfer to the employee instances of improvements in existing for a benefit under old-age, survivors, upon separation before retirement plans. The improvements took the and disability insurance his monthly the right to the accrued pension re- following forms: adjustment of bene- benefit under the plan drops to sulting from his employer’s contribu- fit formulas to amendments in the $22.50. tions, have received much attention Social Security Act, liberalization of in the negotiations in the mass-pro- benefit formulas and eligibility re- Liberalization of benefit formulas. duction industries. Such provisions quirements, changes in disability ben- -The benefit formulas have been are common in insured plans but eflts, and increased vesting provisions. liberalized in various ways. In the have not been adopted until recently mass-production industries the mini- in the noninsured plans that pre- Integration with old-age, survivors, mum benefit-a flat monthly benefit dominate in these industries. The and disability insurance. - When for each year of service-has been Bankers Trust Company, in its 1956 plans were first negotiated in the increased. In the automobile indus- analysis of 61 private retirement mass-production industries, they fre- try the maximum on the number (30) plans, observed that in 1952 few of quently provided for offsetting the of years of service that could be cred- the plans in the mass-production in- full amount (one-half the full amount ited was eliminated in mid-1955, and dustries had vesting provisions 18 but in the rubber industry) of the old- the monthly benefit for normal re- that 27 percent had vesting provisions age benefit under the Social Security tirement was raised from $1.75 for at the end of 1955. Outstanding ex- Act from the amount derived from each year of service to $2.25. In amples of plans in which vesting pro- the plan’s benefit formula. As a re- other industries the benefit expressed visions were added are those adopted sult, when benefits paid under the as a percentage of average wages dur- in 1955 in the automobile and rubber Act were liberalized, the amount of ing the entire period of service, for industries, which provide for vesting benefit payable by the plan was re- each year of service, was changed to at age 40 and after 10 years of serv- duced. a percentage of the average wage ice, and those in the steel industry, In mid-1954 the United Steel Work- during the last 10 years (or 5 years) where similar provisions (vesting at ers signed a series of agreements with of service. In still others the per- age 40 and after 15 years of service) manufacturers in the basic steel in- centage factor was increased. went into effect as of November 1, dustry, which provided that future 1957. For steel workers, however, increases in the Federal benefits Changes in disability benefits.- vesting is restricted to those laid off would go to the retired workers and, Disability benefits were changed in for 2 years or more or whose services for that purpose, froze the amount many instances by reducing the elig- are terminated as a result of a per- to be offset from the plan’s monthly ibility requirements, increasing the manent shutdown. benefit at $85-the maximum old-age benefits, or both. benefit then payable under the Act. In the automobile industry the age ‘8 Bankers Trust Company. A Study of In addition, it ohanged the minimum requirement (50) for eligibility has Industrial Retirement Plans (1956 edition).

12 Social Security