Employee-Benefit Plans, 1954–62

Employee-Benefit Plans, 1954-62

by JOSEPH KRISLOV*

The Social Security Administration has presented are included in t.he series, whether or not the periodic reviezos, starting with dnta for 195.4, of government unit contributes (as an employer) to mujor developments in the plans sponsored and the financing of the program. Specifically in- underzoritten by private organizations to help cluded here are plans providing government em- employees-and their families-meet the economic ployees wit,11 group life insurance, accidental death risks attending old age, death, disability, unem- and dismemberment insurance, and hospital, sur- ployment, and the cost of medical care. This year’s gical, regular medical, and major-medical-expense review highlights plan experience in 196.8, the insurance. Retirement and sick-leave plans in growth of the plans during the period 195&6.2, which the government in its capacity as employer and the scope and adequacy of the protection that pays benefit,s directly to its employees are they provide. excluded.

BY THE END of 1962, employee-benefit plans were covering 111 million persons-workers and t,heir dependents-under some form of health in- HIGHLIGHTS OF 1962 surance, 52 million under life insurance, and 23 million under private retirement plans. Reflecting Three Federal laws affecting employee-benefit 1962’s generally favorable economic conditions, plans were enacted in 1962 : (1) the Self-Employed most of the major types of plans showed gains in Individual’s Tax Retirement Act (Public Law 87- coverage, cont,ributions, and benefits that exceeded 792) ; (2) the Welfare and Pension Plans Dis- those in 1961. In fact; 1962 was the first year in closure act ,Qmendments (Public Law 87-40) ; which both benefits and contributions registered and (3) legislation permitt,ing tax deductions for an increase of more than $1 billion. Total con- employer contributions to private pension plans t,ributions to employee-benefit plans in 1962 were that include health-care benefits for retired em- $14.4 billion, and benefit payments amounted to ployees and their families (included in Public $9.8 billion. Law 87-863). ,411 “employee-benefit plan,” as defined here, is Enacted after more than a decade of legislative any type of plan sponsored or initiated unilater- consideration, the Self-Employed Individual’s Tax ally or jointly by employers and employees and Retirement Act encourages the establishment of providing benefit,s that stem from the employment pension plans by the self-employed (an estimated relationship and that are not underwritten or paid 7 million persons) by permitting a tax deferral directly by government (Federal, State, or local). on the amounts contributed to qualified retirement In general, the intention is to include plans t,hat funds. To qualify, a self-employed person must provide in an orderly, predetermined fashion for provide a retirement plan for all his full-time (1) income maintenance during periods when employees who have 3 or more years of service. regular earnings are cut off because of death, acci- The most important changes made in the Wel- dent, sickness, retirement, or unemployment and fare and Pension Plans Disclosure Act are those (2) benefits to meet expenses associated with ill- requiring the bonding of persons handling funds ness or injury. and other properties of pension and welfare Government employees who are covered by funds, making certain actions violations of the plans underwritten by nongovernmental agencies United States Criminal Code, providing for the establishment of an Advisory Council, and au- thorizing the Secretary of Labor to issue rules * Division of Research and Statistics. Earlier articles in and regulations and to conduct investigations with this series have appeared in the March or April issue of the Bulletin. respect to violations of the act.

4 SOCIAL SRCURITY As in previous years, collectively bargained con- fare funds in 1962, and it was estimated that about tract settlements were the highlights among the 1.5 million persons had some coverage at the end improvements in employee-benefit plans. Particu- of the year.2 larly prominent in 1962 was the settlement in the The other relatively new plan-long-term dis- basic steel industry, which did not change wage abilit,y insurance-is designed for middle- and rates but made several improvements in the plans.’ high-income employees to supplement sick-leave Supplemental unemployment benefit levels in the plans and insurance plans paying benefits during industry were increased, a new short-week benefit a short-term disability. Under the long-term was introduced, and the employer contribution plans, payments are made to totally disabled per- was increased substantially. In addition, a new sons who have exhausted their short-term benefits. “savings and vacation” plan was adopted. Em- About two-thirds of the long-term disability ployees were given credits of 1 week’s pay for each policies of one large insurance company limited 5 years of service before 1961, plus credit for each their coverage to salaried employees, and many 2-year period of service after 1960. The latter further limited coverage to those employees whose credits may be used as pay for extra vacation salary\ exceeded specified limits-typically $4,800 time, during sickness, during layoff after supple- or $6,000. Benefits as a percentage of earnings mental unemployment benefits are exhausted, or typically provided 50 percent or less of the em- at termination or retirement. Following the gen- ployee’s income, with average maximum monthly eral pattern among pension plans, the agreements benefits ranging from $535 to $1,550. also included several provisions to encourage retirement. Similar settlements were negotiated by the United Steelworkers of America in the alumi- num, can, and related industries. TRENDS, 1954-62 In 1962 the Progress Sharing Plan, negotiated The major types of employee-benefit plans in- in 1961 between the American Motors Corporation creased their coverage substantially during the and the United Automobile Workers, made its period under review. Contributions more than first annual distribution of profits. The year’s doubled, and benefits almost tripled. Tables 1, 2, results-generally considered favorabl+suggest and 3 show the trend for each type of employee- that the union may seek to negotiate additional benefit plan. profitlsharing plans. Of the $9.7 million available for distribution in 1962 to the 27,000 hourly employees of the American Motors Corporation, two- thirds was allocated to finance the increased cost Coverage of the supplement,al unemployment benefit plan. At the end of 1962, life insurance was the most Individual employees received the remainder in common form of employee protection, covering the form of company stock ; the average was 7.3 47.9 million employees (table 1). Hospitalization- shares per employee. An employee’s accumulated the most common benefit in the early years of the shares will be transferred to him (or his depend- series-was second in 1962 and covered 43.2 mil- ents) if he has been laid off at least 1 year and has lion employees. Health plans, however, cover sig- exhausted his unemployment benefits, if he has a nificantly more dependents than life insurance. long-term illness or disability, if his job is termi- Hospital-expense insurance covered 67.5 million nated, or if he retires or dies. dependents; surgical-expense insurance, 64.4 mil- Some progress was reported during 1962 in ex- lion; and medical-expense insurance, 49.6 million. tending two comparatively new types of employee- In contrast, life insurance plans covered only 4.2 benefit plans-dental insurance and long-term dis- million dependents. ability insurance. Dental insurance plans were The basic health programs registered bigger adopted by a few employers and health and wel-

2 Lee R. Farmer, “Pioneering Dental Insurance,” and 1 For details, see Department of Labor, Bureau of Kenneth C. Nichols, “Long-term Disability,” Addresses Labor Statistics, Current Wage Developments, April 1, Presented at the 196.3 Group Ineurance Forum, Health 1962, pages 3-5. Insurance Association of America, 1963.

BULLETIN, APRIL 1954 5 gains in 1962 than in 1961, both absolutely and insurance reported an impressive advance of 1.2 relat,ively. Hospit.al-expense insurance added 1.9 million in 1962, compared with only 0.3 million in million employees and 2.8 million dependents to 1961. its rolls in 1962, compared with 0.9 million em- Some programs had smaller gains in 1962 than ployees and 1.6 million dependen& in 1961. in 1961. Major-medical-expense insurance added Surgical-expense insurance reported 5.0 million only 3.6 million subscribers in 1962, compared new subscribers-2.0 million employees and 3.0 with 5.9 million in the preceding year. In fact, million dependents; of the 2.0 million added in the the 1962 increase was the smallest for the period preceding year, 0.7 million were employees and under review. Coverage under life insurance and 1.3 million were dependents. Temporary disabi1it.y private ret.irement plans increased less in 1962

TABLE l.-Estimated number of wage and salary workers and their dependents covered under employee-benefit plans, 1 by type of benefit, December 31, 1954 and 1956-62

Beneflts for wage and salary workers Benefits for all wage and salary workers I in private industry Temporary disability Hospitalization 4 5 including formal sick Year Life Accidental leave 7 Regular Major E%- inszizY “;geagf ------Surgical ’ medical 4 medical ~- “gw$l,Y - iE!F death 2 berment s Written in expense 46 Written in Total compliance Total compliance with law with law

Total ______~ ~~ 1954..... ___-__-_- 30.9 14.0 75.3 ::i 66.2 38.1 1.9 22.9 6.7 ______.___ 14.2 lQM1____.______. .- 37.8 17.3 89.0 82.0 54.6 8.3 25.2 7.1 2.0 16.8 1957....-.---...- 40.5 18.4 93.9 1.6 87.8 60.7 12.4 25.8 7.2 :+ 18.1 1958_..__------.- 41.8 18.7 95.0 1.4 89.5 63.6 16.2 24.9 6.8 18.8 1959__._.____- ---- 44.3 19.7 98.1 1.5 93.6 69.7 20.3 25.3 6.9 1:9 19.9 1960. ..______--. -. 46.5 20.9 103.5 1.2 98.8 74.8 25.6 25.5 6.8 1.7 21.2 1961_.______- _- - - 49.5 21.3 106.0 1.1 100.8 78.1 2:: 25.8 6.8 1.8 22.2 19m__._. __ ___. ._- 52.1 22.6 110.7 0.9 105.8 82.8 27.0 6.8 1.8 23.1

Employees --- 1954.... ______29.8 14.0 31.1 1.4 27.8 17.0 0.8 22.9 6.7 ______. 14.2 1956_____: ______35.5 17.3 35.6 1.5 33.2 22.7 3.6 25.2 7.1 2.0 16.8 1957.... _. -. _. -- - - 37.8 18.4 37.1 1.6 35.0 24.9 i:; 25.8 7.2 1.9 18.1 1958__._ _ _ _. -. - 39.0 18.7 37.2 ::“5 35.2 25.7 24.9 6.8 1.7 18.8 1959_.._ I __.... _.. 41.8 19.7 38.3 36.7 28.1 7.8 25.3 6.9 1.9 19.9 1960______..__ _.. 43.4 20.9 40.4 1.2 38.7 30.0 9.7 25.5 6.8 1.7 21.2 1961...._. . ___--- 45.9 21.3 41.3 1.1 39.4 31.2 11.6 25.8 6.8 1.8 22.2 1662_._. ____ --- 47.9 22.6 43.2 0.9 41.4 33.2 12.9 27.0 6.8 1.8 23.1

Dependents

1954______. -- - - 1.1 .__- .______44.2 ______38.4 21.1 1.1 ______.__ ._._.-...... --.---- _-- 1956...-...-..-.. 2.3 .___.__ ___. 53.4 ____..__..__ 48.8 31.9 4.7 ______..__.._...... _...._. _.__.._____, 1957___. --._.--__- 2.7 -___..______56.8 ______..._ 52.8 35.8 7.3 ______._____.______._ __.-..-_-_.- 19%___.. __ .-..--- 2.8 -.-- .______57.8 __.______54.3 37.9 9.9 .____._ .___ ._ .______1959._.._ ._ . ..- --. 3.0 -.__._ __---- 59.8 ______._.___ 56.8 41.6 12.5 ._._._. ._._ ..- .__....______.______1860.. ______. 3.1 ______._ 63.1 ..__._.__._. 60.1 44.8 15.9 ______. .___._..._.. 1961______.. 3.6 ____-- ______64.7 _____.______61.4 46.9 19.9 ._..._.-___. __.-.-_____. ______.-______1962___...... ___. 4.2 .-._-.___-__ 67.5 ______64.4 49.6 22.2 .-_.____..-. .._.._.-_... -_-__.__.-.- _-._____.___ - 1 Plans whose benefits flow from the employment relationship and are medloal expense Insurance. not underwritten or paid directly by government (Federal, State, or local). 5 Includes private hospital plans written in compliance with State tem- Excludes workmen’s compensation required by statute and employer’s porary disability insurance law in California. liability. 6 Represents coverage under group supplementary and comprehensive 2 Group and wholesale life insurance coverage (Institute of Life Insurance, major medical Insurance underwritten by commercial insurance companies. Group I?w~rance Coverage8in the United States, 1954,1956-62)and self-insured Comprehensive insurance, which includes both basic hospital-surgical- death benefit plan coverage (based on data for various trade-union, mutual medical boneflts and major medical expense protection in the same contract, beneflt association, and company-administered plans). The group life covered 3,599,OOOemployees and 6,153,OLXldependents in 1962. insurance totals include group coverage issued through credit union and 7 Includes private plans written in compliance with State temporary alumni and other groups, as well as through trade unions and professional disability insurance laws in California, New Jersey, and New York. Data associations and the usual employer-employee voups. from the Health Insurance Council (seefootnote 4). 8 Data from the Institute of Life Insurance (see footnote 2). 8 Based on trade-union.and industry reports. Excludes dismissal wage 4 Data from Extent of Voluntatg Hxlth Insurance Covmge in the United and separation allowances, except when financed by supplemental un- States (Health Insurance Council, 1954and 1956-62)and from the Institute employment benefit funds covering temporary and permanent lay-offs. of Life Insurance (see footnote 2). In estimating number of employees 9 Estimated by the Division of the Actuary. Social Security Administra- covered under plans other than group insurance and union and company tion. Includes pay-as-you-go and deferred profit-sharing plans, plans of lams, 75 percent of all subscribers assumed to be employees. Data for nonprofit organizations. union pension plans, and railroad plans supple- Eospitalization, surgical, and regular medical coverage adjusted to include menting the Federal railroad retirement program. Dataexclude annuitants. employees and their dependents covered by group comprehensive major

6 SOCIAL SECURITY than in 1961. Supplemental unemployment benefit Contributions plans failed to show any increase in 1962. Employer and employee contributions to em- Life insurance plans showed the greatest in- ployee-benefit plans totaled an estimated $14.4 crease (18.1 million) in employee coverage from billion in 1962, an &percent rise from the 1961 1954 to 1962, and plans providing regular medical- estimate of $13.3 billion (table 2). The rate of expense insurance ran a close second (16.2 mil- increase, although slightly higher than in 1960 lion). Most of t,he other types of plans also showed and 1961, was substantially lower than during substantial growth, ranging from 8.6 million for most of the 1950’s. plans affording benefits for accidental death and The largest dollar increase in contributions in dismemberment to 13.6 million for surgical- 1962 was for hospitalization ($313 million). The Temporary disability insur- expense insurance. second largest ($250 million) was for retirement ance plans, however, increased their coverage by plans; this rise was substantially greater than only 4.1 million, and the coverage of supplemental those in 1961 and 1960. unemployment benefit plans has changed little ‘Major-medical-expense insurance3 showed the since their inception in the mid-1950’s. greatest percentage gain (16 percent), but this The greatest relative increase for the period rate of increase was the lowest recorded since this under review took place in the comparatively new program’s start in the early 1950’s. The other two field of major-medical-expense insurance, where health categories reported increases of ll’percent employee coverage in 1962 was 16 times what it during 1962. Temporary disability insurance and had been in 1954. The unusually high rate of growth reflects the rather low coverage in effect in t’he earlier year, when fewer than a million em- 3 Data on major-medical-expense insurance refer exclu- ployees had that type’ of protect,ion. Regular sively to plans underwritten by commercial insurance companies and exclude plans of this type (covering about medical-expense insurance, which also covered 4 million persons as of the end of 1961) under Blue relatively few employees in 1954, experienced a Cross and Blue Shield. Contributions and benefit pay- 95percent rise. The other major plans showed ments for this kind of extended protection under the Blue Cross and Blue Shield plans, however, have been varying but lower percentage increases in cover- included in the basic health programs, since no specific age during t,hc 8 years. dollar amounts for such expenditures are available.

-TABLE 2.-Estimated total emnlover and emnlovee contributions 1 under emnlosee-benefit plans, 2 by type of benefit, 1954 -and 1956-62

- - - - Type of benefit 1954 1956 lae0 1961 1962 .- .- _- Total.. . .._.______------.-...--...------.---.--- $6,919.1 $5,775.7 $9,919.3 $10,398.4 ;11,564.0 1b12.339.5 613,261.7 %14,35&l .- .- .- _- Benefits for all wage and salary workers: Life insurance and death benefits *-.-- ______._...... ______741.1 994.6 1,103.6 1,336.4 1,471.l 1,624.4 1.758.2 Accidental death and dismemberment 4_.______...__-.- 33.5 49.7 56.5 66.0 70.0 75.0 80.0 Hospitalization 0 6. ..______---...-..-.------... 1,221.4 1.603.2 1,805.5 2,230.3 2.504.8 2,823.3 3,136.2 Surgical and regular medical 5._._.______....._..------.--. 684.2 897.5 1.021.3 1.186.9 1,272.2 1.435.0 1,.%5.7 Major medical expense 7- ______..______.___._____.---.-- 18.0 94.0 169.0 357.0 470.0 651.0 753.0 Benefits for wage and salary workers in private industry: Temporary disability, including formal sick leave *. .._._._____ 780.9 911.7 1,023.4 1,051.7 1,102.4 1.186.4 1,233.0 1,323.0 Written in compliancewith law ______.._....--.... 178.1 177.9 618.8 6.59.~ y&i Supplemental unemployment beneflts 9.----- ______.___.______..,-,,-, 125.0 170.0 %d E: d KG 120.0 Retirement 10.______------.-..------.--- , . 4,100.o 4,570.o 4,660:o 5.160.0 5,240:O 5,310.o 5,5&o - - - 1 Excludes dividends in group insurance, except for 1954contributions porary disability insurance law ln California: separate data not available for temporary disability, hospitalization, surgical and regular medical, and ior these plans. major medical expense benefits. 1 Unuublished data from the Health Insurance Association of America. 2 Plans whose benefits flow from the employment relationship and are not underwritten or paid directly by government (Federal, State, or local). Excludes workmen’s compensation required by statute and employer’s liability. 3 Qroup and wholesale life insurance premiums (Institute of Life Insur- ance, Uroup Insurance Ccoerages in the United States, 1954and 1956-62,and self-insured death benefit costs (based on data for various trade-union, mutual beneflt association, and company-administered plans). and separation allowances, except when-financed by supplemental UC- 4 Data from Institute of Life Insurance (seefootnote 3). employment benefit funds covering temporary and permanent layoffs. 5 Data from “Private Consumer Expenditures for Medical Care and For the steel industry plans, includes accruals of contingent liability con- Voluntary Health Insurance, 1948-62,” Social Securitg Bultitin, December tributions as well as regular contributions. 1963. In estimating contributions for employees under plans other than 10Estimated by the Division of the Actuary, Social Security Adminlstra- group insurance and union and company plans, 75 percent of subscription tion. Includes contributions to pay-aa-you-go and deferred -profit-sharing income attributed to employed groups. plans, plans of nonpro5t organizations, union pension plans, and railroad 6 Includes private hospital plans written in compliance with State tem- plans supplementing Federal railroad retirement program.

BULLETIN, APRIL 1964 7 private retirement programs, which had reg- Benefits istered only nominal rises during 1961, experienced advances of 8 percent and 5 percent, respec- Benefit payments for all types of employee- tively, in 1962. benefit plans totaled $8.8 billion in 1961 and $9.8 Of the total amount contribut,ed in 1962, $5.6 billion in 1962. The 12-percent increase (table 3) billion or 39 percent went to privat,e retirement was remarkably close to those in every year since programs. The three health programs accounted 1958. Accounting for the largest part of the 1962 for $5.5 billion, or 38 percent of all contributions increase were the expenditures for hospitalization to employee-benefit plans. Life insurance ( includ- benefits ($317 million) and ret,irement benefits ing accidental death and dismemberment) was re- ($230 million). The other health programs and sponsible for 13 percent of the total contributions the life insurance programs each accounted for and temporary disability insurance for 9 percent. an additional expenditure of more than $100 In 1954 the distribution of contributions had million. been somewhat different. Fifty percent of the In 1962 benefit expenditures from the three total went, to retirement, programs, 28 percent to health programs totaled $5 billion, or 51 percent health programs, and 11 percent, each to life insur- of all benefits paid. Hospitalization benefit ex- ance and temporary disability insurance (chart 1). penditures accounted for the largest single outlay An accelerated trend has become apparent in (30 percent), and private retirement benefits were more recent years toward an increasing propor- second (22 percent) . Two programs-surgical- tion of contributions made to health programs and expense and regular medical-expense insurance a decreasing proportion to retirement plans. Con- and life insurance-u-ere each responsible for 14 t.ributions to health programs as a proportion of percent of all benefit payments. Temporary dis- total contributions increased 4 percentage points ability insurance and major-medical benefit pay- from 1954 to 1958, but they gained 6 percentage ments accounted for 12 percent and 7 percent, points from 1958 to 1962. Contributions to retire- respectively, of the benefit dollar. ment programs dropped 5 percentage point,s from There have been some shifts in the distribution 1954 to 1958 and 6 percentage points from 1958 to of the benefit dollar since i954 (chart Q), but 1962. these shifts have not been so marked as those for

CHART l.-Contributions under employee-benefit plans: Percentage distribution, by type of plan, 1954 and 1962

1954 1962

nt 1%

SOCIAL SECURITY contributions. The growth from less than 1 per- ployed wage and salary labor force and payroll cent in 1954 to 7 percent in 1962 in the proportion in private industry. of benefit expenditures for major-medical-expense For most, types of plans, growth and coverage insurance was a factor in raising the proportion kept ahead of the growth in the labor force during spent for health programs from 47 percent in 1954-62. About 4 out of 5 wage and salary workers 1954 to 49 percent in 1958 and to 51 percent in were covered by life insurance at the end of 1962, 1962. Private retirement plans were responsible compared with only 56 percent in 1954 (chart 3). for 20 percent of all benefit payments in 1954 and Hospital and surgical-expense insurance, which for 22 percent in 1962. During the same period covered 59 percent and 52 percent of the wage and the proportion of expenditures for temporary dis- salary labor force, respectively, in 1954, increased ability insurance declined from 18 percent to 12 coverage at a somewhat slower rate. The rapidly percent, and life insurance benefit payments de- growing major-medical-expense insurance plans clined from 15 percent to 14 percent.. increased coverage from less than 2 percent to 21 percent of the wage and salary workers. Private pension plans covered about 3 out of 10 workers in private industry in 1954; by 1962 about 45 per- MEASURING REAL GROWTH cent’ of the workers were covered. Temporary dis- Of more significance than changes in the num- ability insurance has been a major exception to ber of covered employees and in the amounts this rapid growth and since 1957 has shown hardly contributed for various types of benefits is the any advance. Supplemental unemployment benefit extent to which these changes represent real in- plans have also shown little change i-ri t.he propor- creases in terms of the total wage and salary labor tion of workers covered since their inclusion in force and aggregate payrolls. For those types of the series in 1956. benefits for which data for government employees For those plans t,hat covered a greater propor- are included, table 4 relates coverage and contribution of workers in 1962 than in 1954, growth was tions to all employed wage and salary workers generally much greater in the early years of the and their payrolls. For retirement, temporary dis- series. Life insurance, for example, increased its ability, and supplemental unemployment benefits, coverage by 14 percentage points from 1954 to which exclude data for government workers, 1958 but by only 9 points from 1958 to 1962. coverage and contributions are related to the em- Major-medical-expense insurance was an excep-

TABLE 3.-Estimated benefits paid under employee-benefit plans, 1 by type of benefit, 1954 and 1956-62 [In mllllons] - - - - -i- Type of benefit 1954 1956 1957 1958 195s lee0 1861 1962 .- _- .- .- _- Total ______-______$3.533.3 34.8243.1 35.598.3 36-293.5 36.984.7 $7.849.5 38.754.S $3,768.9 .- _- .- .- -- .- Beneflts for all wage and salary 1workers: Life insurance and death beneflts’_~~~~~ _ --_--______515.6 662.8 798.2 875.3 1,055.8 1,169.4 1,294.1 Accidental death and dismemberment 3______.______30.5 36.7 42.3 %i 47.3 58.0 68.8 Hospitallzatlon 4 5___.______lv495.4 1.714.1 1,892.7 2,‘“;:; 2,355.0 2,66&2 2,98$; Writlcn in compliance with law ______6.8 8.6 8.0 Surgical and regular medical 4______75t.z 876.9 1,024:2 1.116.2 1,2378:; 1,3&5 Major medical expense (______e7:o 131.0 EEJ 332.0 427.0 562.0 667.0 Benefits for wage and salary workers in private ln@~+-*~. Temporary disability, including formal sick leavr .....~~~ 817.5 892.4 896.1 954.1 1,033.2 1,039.6 1,135.2 Written in compliance wilh law. ______I 151.9 178.1 188.7 189.6 196.1 801.4 597.6 Supplemental unemployment L---Q*-“tsutiuw-... * -______-______-- -_---. 5.0 20.0 135.0 75.0 105.0 100.0 110.0 Retirement *______---_-______I----- 710.0 999.0 1,130.o 1,290.o 1.510.0 1.710.0 1,929.O 2,150.o - - - - - 1 Plans whose beneflts flow from the employment relationship and are porary disability insurance law in California, shown separately in next line. not underwritten or paid directly by government (Federal, State, or local). 6 Unpublished data from the Health Insurance Association of America Excludes workmen’s compensation required by statute and employer’s Represents benefits psid under group supplementary and comprehenlve liability. major medical insurance underwritten by commercial insurance carriers. * Group and wholesale insurance benefits (Institute of Life Insurance, 1 Data from “Income-Loss Protection Against Short-Term Sickness: Lije Inaurancc Fact Book, 1963,and estimates made by the Social Security lQ4&62,” Social &curiltJ Bdlelin, January 1964. Includes private plans Admlnlstratlon) and self-insured death beneflts (based on data for various written in compliance with State temporary dlsabllity insurance laws in trade-union, mutual benefit association, and company-administered plans). California, New Jersey, and New York, shown separately in next line. s Unpublished data from the Institute of Life Insurance. 8 Based on trade-union and industry reports. Excludes dismissal wage ‘Data from “Private Consumer Expenditures for Medical Care and and separation allowances, except when financed from supplemental un- Voluntary Health Insurance, 1898-82,” Social SecuritrJ Bulleetin, December employment benefit funds coverlnq temporary and permanent layoffs. 1963. In estimating benefits psid to employees under plans other than group @Estimated by the Division of the Actuary, Social Security Admlnistra- insurance and union and company plans, 75 percent of benefit expenditures tlon. Includes benefits paid under pay-as-you-go and deferred profit-sharing attributed to employed groups. plans, plans of nonprofit organizations, union pension plans, and railroad 1 Includes private hospital plans written in compliance with State tem- plans supplementing Federal railroad retirement program.

RUtLETll9,A?RlL 1964 9 tion ; coverage under this program rose by about $2.48 per $100 of private wages and salaries was 10 percentage points in both periods. reached in 1959. Since then the ratio has declined Table 4 also shows annual increases in contribu- each year; it was $2.30 per $100 of payroll at the tions as a percentage of aggregate wages and sal- end of 1962. aries for all types of employee-benefit 1~1:~~s.Fol As an indication of growth, these measures have the plans with contributions related to all wages definite limital ions. Estimates of coverage, con- and salaries-that is, life insurance, accidental tributions, and benefits are based primarily on cleat h Nld dismemberment, and the health reports by private insurance companies and other programs-employer-employee contributions in- nongovernmental agencies. (‘overage data are gen- creased during 1954-62 by $1.09 per $100 of pay- erally based on reports of active participants--a roll, or approximately 75 percent. I’nlike the group not necessarily restricted to wage and growth in coverage, which was more heavily con- salary workers currently employed. Active par- centrated during the early years of the series, the ticipants may include persons who have been tem- absolute increase in contributions ,was divided al- i)orxrily laid of7 or retired. The practice of con- most exactly between the two l-year periods tinuing the coverage of a retired worker as a (1955-58 and 1959~62)-54 cents in the early member of a group is particularly prevalent in years and 55 cents in the later years. group life insurance and is becoming increasingly Employer-employee contributions to temporary significant in group health programs. Many group disability aad retirement, plans in relation to plans permit. a person who is temporarily laid off wages and salaries in private industry increased to continue his group coverage, on payment of only 10 percent. from 1954 to 1962 (%7 cents per premiums, for 3-6 months or even longer. $100 of payroll). The increases were concentrated In addition, some group life and health insur- in the years 1955-58. Coutribut,ions for temporary ance plans are sold to trade, farm, professional, disability insurance fluctuated during 1959-62, and ot,her associations, including v’eterans’ groups dropping to 52 ceiits per $100 of private wages and credit unions, that, include in their member- and salaries in 1959 and slowly increasing to 55 ship persons not in the It-age and salary labor cents in 1962. The amount, contributed to retire- force. At the same time, some members of these ment plans increased each year until a high of groups may have group life insurance or health

CIIAHT 2.-Benefit payments from employee-benefit plans: Percentage distribution, by type of plan, 1954 and 1962

1962

ent ...... 1 % ......

::::::::::::::: % ::::::::::::::::: ......

......

‘10 SOCIAL SECURITY insurance coverage at their place of employment be explained by the growth in the number of em- and hence may be counted twice. ployees and dependents covered or the increased So attempt has been made in this series t,o cor- price of providing the identical services. In t.he rect the coverage data for these limitations. The field of health and disability insurance, increased ratios relating the number of covered workers to aggregate expenditures may also reflect a greater the employed labor force nncl those relating the volume of sickness, requiring more utilization of amounts contributed to aggregate payroll are hospitals and medical services, or a larger number probably overstated because the numerator of the of days of wage-loss reimbursement. Estimates of fraction includes persons who are 110 longer em- the increase in the real value or quality of the 1)loyecl and whose contributions, mlless paid or protection can be obtained only by taking account shared by an employer, bear little relation to the of these factors. Xation’s current wage and salary bill. These limitations should be considered when these ratios are used as indexes of growt,h. Hospital Benefits Hospit,al benefits (including those paid from major-medical-expense insurance) increased 208 HEALTH AND WELFARE BENEFITS percent from 1954 to 1962. Benefits per partici- The growing amounts of contributions and pant, however, increased only 109 percent. Of this benefits paid under employee-benefit. plms may increase, about three-fifths can be attributed to a not nece&arily represent real gains for individual rise in the cost of hospital care, if the 65-percent employees, in terms of t.he scope and adequacy of increase in hospit,al room rates reported in the the protection furnished. Some of the rise in Bureau of Labor Statistics consumer price index aggregate expenditures for employee benefits may can be considered indicat.ive of hospitalization

TABLE 4.--Coverage and contributions under employee-benefit plans, 1 by type of benefit, in relation to employed wage and salary labor force and payroll, 1954 and 1956-62 - I I Temporary Life Accidental Major disability, Supple- Ye31 insurance death and Hospital- Surgical Regular medical including mentdl un- and death fe;.ee;i ization medical expense formal employment “:% sick leave ___- - _. Covered employees as percent of wage Covered employees as percent of all wage and salary workers 2 and salary workers in private industry J I-~------_ - T-- 1954..--....-...... -...-- 56.2 26.4 58.7 52.5 32.1 1.5 49.9 .-...-__.-____ 31.0 1956-...... ---...... -..-.. 62.5 30.4 62.6 58.5 40.0 6.3 51.3 4.1 1957-...... --...... ---. 66.0 32.2 64.8 61.2 43.5 9.0 52.2 3.6 ii.? 19x.. . .._...... _____.__ 69.7 33.4 66.5 62.9 46.0 11.2 52.0 3.6 39:3 1959...- . . . ..___..__ ._.__ 72.5 34.1 66.4 63.6 48.7 13.6 51.2 3.8 40.3 1960...- ______.____..__ 73.9 35.5 68.7 65.9 51.0 16.6 50.9 3.4 42.3 1961._.._...... _...._ 78.2 36.2 70.2 67.1 53.1 19.7 51.7 3.6 44.5 1962...... -... 79.3 37.4 71.4 68.4 X.9 21.3 52.8 3.5 45.1 _. Employer and employee contributions Employer and employee contributions as percent of all wages and salaries ‘ es percent of wages and sdaries in private industry 5 ____ --__ -. 1954.-...... -...... ------0.40 0.02 0.66 6 0.37 0.01 0.48 _____. 2.13 1956..-.....-...... -. .46 .02 .74 0 .41 .04 .48 0.07 2.16 1957...... _. -.._-__ .48 .02 .79 6 .45 .07 .52 .09 2.31 1958.-...- __...__._...__ -. .53 .03 .85 6 .47 .12 .54 .06 2.38 1959~~~...... ~~.... :E .03 .90 6 .48 .14 .52 2.43 19fio-.-...-.....-...... --- .03 .96 6.49 .18 .53 :E 2.36 1861.. .______.____. _... .60 .03 1.05 6 .53 .24 .54 .05 2.35 1962.-.....-.-..-...----.. .61 .03 1.10 6 .55 .26 .55 .07 2.30 - 1 Plans whose bencflts flow from the employment relationship and are labor force in private industry-51.1 million in 1962(from table VI-14 in not underwritten or paid directly by government (Federal, State, or local). sources listed in footnote 2). Excludes workmen’s compensation required by statute and employer’s 4 Amounts for private and public employees related to private and govern- liability. ment wages and salaries-$286.3 billion in 1962(from table VI-2 in sources 2 Coverage of private and publir employees related to average number of listed in footnote 2). private and government full-time and part-time employees~0.5 million in 5 Amounts for private employees related to wages and salaries in private 1962(table VI-14 in U. S. Income and Output, :I SuppZerr.entto the Puree!! industry-$241.6 billion in 1962(from table VI-2 in sources listed in foot- of Current Zhsiness, 1958,and in Suroe!~of Current Business, Nationnl Income note 2). Nwnber, July 1963). 6 Dat? on contributions for surgicsl and regular medical benefits not J Coverage of private employees related to wage and salary employed available separately.

BULLRTIN, APRIL 1964 11 CHAIIT $.-Workers covered under employee-benefit plans as a percent of employed wage and salary labor force, 1964, 1958, and 1962

All wage and salary workers Percent I I Life insurance Surgical 80

60 Accidenta I death -I 40

0 , 80 Hospitalization 71 1 Major medical 1

s in

Retirement

1954 1958 1962 1954 1958 1962

12 socru s- prices in general. Thus, about one-fourth ot t’ne members enrolled in basic plans were covered for increase in aggregate benefit, outlays for hospital- hospital stays of 70 days or more under new group ization can be assumed to relate to additional plans written in 1961 and 1962 ; about 10 percent services received by individuals. were enrolled in plans offering 120 days or more.6 An analysis of the data indicates that more The average maximum daily room-and-board than half the real gain in services was registered benefits provided under the new group plans in cluring 1955-58. Benefits per participant increased the Health Insurance Institute sample-excluding more rapidly (47 percent) in those years than in plans that provided full benefit payments for 1959-62 (43 percent), but the cost of hospital ward or semiprivate room-increased from $14 care, as measured by room rates, rose more in the in 1960 to $16 in 1962 (averaged to the nearest later period (30 percent) than in the 4 preceding dollar). A Bureau of Labor Statistics study of years (26 percent). The net effect of the reduced changes in 9’7 negotiated plans from early 1958 rate of increase in benefits per participant and to the winter of 1961-62 showed t,hat more than the accelerat,ing rat,e of increase in costs was to half made some revision in hospital benefits.? reduce real gains during 1959-62. Most of the plans that did not specifically raise These measures of gains in protection are only benefit levels were service-benefit plans that com- rough indications, since changes in hospital utili- pensate hospitals directly for the full cost of zation rates have not been taken into account. If specified hospital care. Some plans providing cash the data on utilization rates for general hospitals benefits increased both daily room allowances and (excluding Federal hospitals) are assumed to allowances for hospital extras; others increased reasonably reflect the experience of those covered only one type of benefit,. by employee-benefit plans, then a 9.3-percent rise The BLS study showed some change in 1959- in days of hospital care per 1,000 persons took 62, as in the earlier period, among collectively bar- place from 1954 t,o 1962. Some of this increase gained plans from a cash to a service method of represents additional days of hospital care made payment. Six of the 90 plans studied shifted possible by the liberalization of insurance cover- from a cash to a service payment, and one plan age and refiect.s real gain ; part may reflect merely shifted from service to cash. The net result was additional days used under coverage that has not that 47 plans provided service benefits in 1961-62, mldergone any improvement.. compared with only 43 in 1958. Since the value of The limited data available suggest that the real service benefits rises automatically as hospital gains in protection during 1959-62, as well as charges increase, there is no appreciable gap be- those of 1955-58,d took the form of extending the tween payment and rising costs, and consequently maximum durat,ion for which full benefits would t.here is some gain in real protection. be paid for hospitalization, raising the daily al- Although health insurance programs did not lowances for hospital room and board, and in- initially provide protection for mental illness, creasing the allowances for hospital extras. The a special report by the American Psychiatric As- maximum number of full benefit, days offered sociation and t,he National Association gf Mental under the basic Blue Cross plans ranged in 1958 Hea1t.h indicates some gains in hospital protection from 21 days (six plans) to 120 days or more for mental illness during the late 1950’s. In 1961, (1.5 plans). By January 19Q2 the number offering 58 of the 83 Blue Cross plans ($0 percent) pro- 120 days or more had increased to 24. The most vided for at least 21 days of care per hospital common maximum in bot,h periods was $0 days.5 period for nervous or mental disorders. In 1955, The Health Insurance Institute studies annu- out of 79 plans, only 39 offered t.he same benefit. ally a sample of new group commercial policies On t,he basis of information from t,he Life Insur- written during the year. About 60 percent, of the ance ,4gency Management Association, the study

4 Alfred M. Skolnik, “Employee-Benefit Plans, 195443,” 0 Health Insurance Institute, Group Health Insurance Racial Recurity Bulletin, March l!XO. Politics I88Ued in 1961 and Group IIealth Insurance 5 For 1958 data, see Herman M. Somers and Anne R. Policic8 Issued in 1963, 1962 and 1963. Somers, Doctors, Patients, and Health Insurance (1961), 7 Dorothy R. Kittner, “Recent Changes in Negotiated page 303. Data for 1962 have been tabulated from Blue Health Insurance Plans,” Monthly Labor Review, Sep- Cross Commission, Blue Cross Guide, 1963. tember 1962.

RUURTIN, APRIL 1964 report concluded that most commercial insurance ante have been liberalized during the past decade, companies offer coverage of mental illness in a with increased maximum benefits and reduced group hospitalization program, but it did not sup- deductible amounts.9 ply data indicating the extent of such protection.8 Surgical and regular medical benefits in exist- ing plans were also liberalized and probably represent some gain in protection. Blue Shield plans, for example, expanded some surgical and other regular medical services from 1957 to 1962, as Surgical and Other Medical Benefits shown by the percentages in the tabulat,ion below. Surgical and regular medical benefit payments, including those paid under major-medical-expense Percent of Blue Shield plans policies, increased in the aggregate by 199 percent providing service from 1954 to 1962. Benefits per participant,, hom- Type of service --- ever, rose only 87 percent. Of this increase, per- 1957 I 1962 haps one-third can be attributed to a rise in Homo and office visits __...... _. .__..____ Pathology.....--...-..-...... -.....-..... charges, as represented by physicians and sur- X-ray-...... ~.~.....~~.....~...... Anesthesia.-....-....--.--.-.----.-.---... geons’ fees in the consumer price index. Thus, In-hospital medical care__._..__.__.__.___. more than two-fifths of the increase in aggregate benefits for surgical and other medical care may represent improvements in the scope and ade- By increasing annual income limits, Blue Shield quacy of the benefits. plans have covered higher income groups under Unlike the real gains in hospital services, those full-payment guarantees. In 1957, five plans pro- in medical services were more rapid during 1959- vided service benefits to subscribers with annual 62 than in the earlier years of the series. Benefits family incomes of $7,000~$8,000; 5 years later, per participant rose more from 1954 to 1958 (39 12 plans provided service benefits to families percent,) than from 1958 to 1962 (35 percent). within these income levels. lo The cost of surgical and other medical care, as Surgical benefit improvements were made by represented by physicians’ and surgeons’ fees in 2 out, of every 5 plans in the BLS study. The the consumer price index, also rose more rapidly schedule of allowances was increased for most, in the earlier years (15 percent) than in the later plans making revisions, although a few plans in- (12 percent). Thus, the reduced rate of increase creasecl the allowances for only a few operations. in benefits per participant was more than matched Nearly half the 97 negotiated plans liberalized by a decline in the rate of increase in the cost of the basic medical benefits by increasing the allow- medical services. These measurements again are ance per visit or day, the maximum number of rough, since no consideration has been given to the days or visits, or both. possible change in the volume of sickness for which medical attention was furnished. Probably the major source of the gain in protection has been the growth of major-medical- expense coverage. Although some labor unions Temporary Disability Benefits initially opposed the adoption of major-medical- For temporary nonoccupational disability, some expense insurance, the number of negotiated plans indication of the gains in protection can be with such insurance has increased. According to obtained by relating the amounts paid Lmder the BLY study of 97 negotiated plans, the number employee-benefit plans to the income loss suffered providing major medical benefits increased from nine in 1958 to 19 in 1961-62. Moreover, the bene-

fit, provisions for major-medical-expense insur- 9 Joseph Francis Follman, Uedical Care aizd HeaUk Inswance: 9 Study in Social Progress (Richard D. Irwin, Inc., lSG3), page 131. 10Arthur a. Offerman, “Accomplishments of Testerdap- 8 American Psychiatric Association and the National Blue Shield,” in American Medical Association, Proceed- Associat.ion for Mental Health, I~zsurancc Coverage of ings, 3rd National Congress on Voluntary Health Insur- XentaE IZEness, 1962, November 1962. ance and Prepayment, 1963.

14 SOCIAL SECURITY by wage and salary workers covered by such Labor Statistics in its community wage surveys,12 plans. Use of this met.hod shows that cash sick- it is estimated that the number of employees ness benefits paid under private plans (including covered by formal sick-leave plans increased lo-15 formal sick-leave plans) replaced 30.6 percent of percent from 1958 to 1962 compared with an in- the gross income loss of workers covered by such crease of 15-20 percent from 1954 to 1958. plans in 1962, 29.3 percent in 1958, and 26.7 percent in 1954. About two-thirds of the real giins, therefore, were registered in the first $-year life Insurance period. This index of growth reflects changes in maxi- As reported by the Institute of Life Insurance, mum duration of benefit,s as well as increases in the total value of employee life insura,nce rose 141 benefit amounts. New York State’s temporary dis- percent from 1954 to 1962. Although coverage ability insurance law required private plans to expanded so rapidly, the value of t’he average have a l3-week maximum duration for benefit,s policy in force incressed only 45.3 percent-from in 1954. The statutory requirement was raised $5,120 to $4,534. This increase, however, has more to 20 weeks in 1956 and to 26 weeks in 1958. than kept pace with the 35.2-percent rise in aver- The effect of this extension is possibly best indi- age annual earnings. Slightly more than half t.he cated by the increase in actual average duration real gain in protection took place in 1955-58 ; at of benefits for New York State workers with the same time t,he average amount of insurance statutory coverage only, who received benefits for per certificate rose 25.2 percent,, and average an- about a third of the total number of weeks for nual earnings rose 17.3 percent. which benefits were payable during 1954-61 under Studies of negotiated plans by the Bureau of the law.ll The average duration of benefits in Labor Statistics indicate the improvements .made 1954 was 5.7 weeks; in 1961 the average had in group life insurance plans. More than half increased 25 percent to 7.1 weeks. were revised between late 1954 a&early 1958. In Data collected under the temporary disability contrast, only about a fourth of’ the plans pro- insurance laws of New York and California indi- vided for higher benefits during early 1958 and c.ate the extent of benefit increases. The average the winter of 1961-62. In the earlier period, the weekly benefit for a disabled worker in New York insurance specified under uniform-benefit plans in 1954 was $34.07 ; by 1962 it had gone up 39 was increased by amounts ranging from $250 to percent, to $47.55. Since from 1954 to 1962 t.he $4,500, but most frequently by $500~$1,000 or gross average earnings of production workers in $1,500. In the later period, small increases were New York State rose 34 percent, benefit increases made in ma,ny plans and increases of $2,000 or have more than kept, pace wit,11 the advancing more for a few plans. In both periods, graduated wage rates. In California the average weekly bene- plans that increased coverage by realining wage fit, to a disabled worker covered by a private plan categories benefited some but not, necessarily all in 1954 was $34.00 ; in 1962 it was $61.24-an SO- employees. percent, increase. Gross average earnings of production workers in California rose 39 percent during the period. Benefit increases have thus kept FINANCING well ahead of advancing wage rates. The index of growth also reflects the growing Benefit. revisions were not the only changes prevalence of formal sick-leave plans, which by made in employee-benefit plans from 1954 to 1962. generally providing for 100 percent of pay from Even when there were no improvements or when the first day of sickness can be expected to replace benefits barely kept pace with increased medical a greater proportion of lost income than insurance costs or rises in wage levels, some employees plans. From data collected by the Bureau of gained as employers increasingly assumed more

12Department of Labor, Bureau of Labor Statistics, 11 Kew York State Workmen’s Compensation Board, Wages and Related Benefits, 1957-58 and Wages and Disability Benefit Program: Claim Statistics, 1951-61, Related Benefits, 1961-62, Bulletins Nos. 1224-20 and 1962. 1303-83, 1959 and 1962.

BULLETIN, APRIL 1964 15 TABLE 5.-Private pension and deferred profit-sharing plans: 1 Estimated coverage, contributions, beneficiaries, benefit payments, and reserves, 195962 - - - Number of benefl- Amount of benefit Coverage,* end of year Employer contribu- Employee contribu- ciaries, end of year payments (in Reserves, end of year (in thousands) tions (in millions) tions (in millions) (in thousands) millions) (in billions) Year ___ .- Non- NOD NO*- Total In- Totnl In- in- Total In- in- Total In- insured sured sured sured sured sured sured

1950...... 9,800 2,600 7,200 $1,750 ‘p$ 450 150 300 $6.1 1951...... 11,000 2,900 8,100 2,260 9;: $2”::‘% 540 170 370 E%$Zo” %:i $6:: 7.6 1952...... -. 11,700 3,200 8,500 2,510 910 1:600 240 190 650 200 450 120 410 16.9 7.7 9.2 1953-e-e...... 13,200 3,400 9,800 2,930 1,010 1,920 260 2‘20 750 230 520 140 470 19.9 8.8 11.1 1954...... 14,200 3.600 10,600 2,930 1,030 1,900 270 240 880 270 610 160 550 23.1 10.0 13.1 1955. ..-...... 15,400 3,800 11,600 3,190 1,100 2,090 280 270 990 300 690 180 660 26.7 11.3 15.3 1956...... 16,800 4,000 12,800 3,490 1,110 2.380 290 320 1.110 340 770 210 780 30.5 12.5 18.0 1957-...... 18,100 4,400 13,700 3.890 1,220 2,670 300 380 1,250 380 870 240 890 34.9 14.1 20.8 1958. ..-.....-... 18,800 4,500 14,300 3,950 1,250 2,700 310 400 1,410 440 970 290 1,000 39.5 15.6 23.9 1959K...... 19,900 4,800 15,100 4,410 1,330 3,080 330 420 1,590 500 1,090 340 1,170 44.9 17.6 27.3 1960..-...... e ... 21,200 4,900 16,300 4,470 1,190 3.280 300 470 1,780 540 1.240 390 1,320 49.9 18.8 31.1 1961...... 22,200 5,100 17,100 4,540 1,180 3,360 290 480 1,900 560 1.340 440 1,480 55.3 20.2 35.1 1962...... 23,100 5,200 17,900 4,740 1,240 3,500 310 510 2,090 620 1,470 500 1,650 60.7 21.6 39.0

1 Includes pay-as-you-go, multi-employer, and union-administered plans, J Includes refunds to employees and their survivors and lump sums paid those of nonprofit orgwizntions, and railroad plans supplementing the under deferred profit-Fhnring plans. Federal railroad retirement program. Insured plans are underwritten by insurance companies: noninsured plans are in general funded throuah Source: Compiled by the Division of the Actuary, Social Security Ad- trustees. ministration, from data furnished primarily by the Institute of Life In- * Excludes annuitants. surance and the Securities and Exchange commission. of the benefit cost. It is estimated that in 1954 Employees contributed a higher proportion of employers paid 47 percent of the cost, of health the cost of insured plans than of self-insured and and welfare benefits (excluding retirement bene- ot,her types of plans. The data compiled under the tits). l3 Data compiled under the Welfare and Welfare and Pension Plans Disclosure ,4ct for Pension Plans T)isclosure Act show that employers 1959 and 1960 show that employee contributions assumed 70 percent of the cost of health and wel- constituted about a third of the total contributions fare plans in 1959 am1 71 percent. in 1960.14 Em- for insured health and welfare plans, compared ployers have therefore and are probably continu- with only 16 percent, for other types of plans. ing to assume an evergrowing share of the cost of The Health Insurance Institute study of new health and welfare plans. As a result, the em- group health insurance plans showed that about ployees’ share of the cost has been reduced 40 percent of the covered workers made no con- substantially. tributions in 1961 and 1962, compared with 34 Though no specific data are available, it seems percent in 1960. The study also showed that the likely that employers probably contribute some- larger the group, the more likely it was that the what less than 70 percent of the cost of health employer paid the entire premium. In 1962, for insurance plans-probably about 65 percent in example, only 30 percent of the new group policies 1959. Data collected under the Welfare and Pen- with fewer than 25 members were noncontribu- sion Plans Disclosure Act include information on tory, compared with 52 percent of the plans with such entirely employer-financed programs as sick 500 or more members. leave and supplemental unemployment benefits. They do not, include expenditures for health plans for governinent employees, who typically contrib- RETIREMENT PLANS ute a higher proportion of the total cost of the plan than clo employees in private industry. Coverage As part of its continuous effort, to refine estimat- I3 Senate Committee on Labor and Public Welfare, TVcZ- ing procedures and to develop additional sources fax and Pensio)z Plam Investiyation: Final Report . . . Submitted bg Its Rubcommittec on Welfare aud Pension of informntioll, the Division of the Actuary of I~f~nds (Senate Report 1734, 84th Congress, 2d session), the Social Security Administration initiated in 1936. 1962 a reexamination of the basis for its pension- l4 Department of Labor, Office of Labor-Management and Welfare-Pension Reports, Welfare and Pension Plans plan coverage estimates. The first result of this Statistics, 1960, February 1963. review has been a downward revision to correct

16 SOCIAL SECURITY for duplication in the coverage of employees total coverage, compared with 73 percent 12 years under multi-employer plans and under trade- earlier. union plans (wit,h no employer financing). An The increase in pension plans underwritten by examination of Department of Labor data and insurance companies has been accompanied by a information from trade unions indicated that the substantial growth in the proportion of deposit- number of employees who were members of both administration plans and a decline in the group of types of plans in 1961 and were counted twice in deferred-annuity plans. Group deposit-adminis- the coverage estimates had been underestimated tration plans represented 37 percent of all insured by about 400,000. Since the duplication arose when plans in 1962, 30 percent in 1958, and 21 percent members of t,rade-union plans were covered by a in 1954. Group deferred annuities, which repre- multi-employer plan, the coverage and the year of sented 60 percent of the insured covered in 1954, establishment of the multi-employer plan were declined to 49 percent in 1958 and to 43 percent obtained and then used to eliminate the duplica- in 1962. tion, begimling with the data for 1957. Employee savings plans are not included in The estimated number of workers covered by t,hese coverage estimates. The results of the first private plans and deferred profit-sharing plans systematic study I6 of employee savings plans in rose by 0.9 million in 1962 to 23.1 million (table the TJnited States suggest that a limited number 5). This increase was one of the smallest in recent of persons may receive benefits from these plans years, and the rate of growt.1~ was the lowest for when they retire, most of whom will probably also any year except 1958. The absolute increase in receive benefits from a private-pension plan. The each of the three 4-year periods for which esti- employee savings plan permits a participant to mates are available (1951-54, 1955-58, 1959-62) voluntarily save some of his salary, and the com- was not too different-4.4 million in the first, 4.6 pany matches all or part of his savings. The com- million in the second, and 4.3 million in the third. bined contributions are made to a trust fund and The annual rate of growth, which averaged 10 are distributed when the employee retires. Be- percent in the first third of this period, dropped tween ll/’ and 13j million employees were esti- to half that rate in the last third. mated to have been participating in these plans In preliminary estimates the National Bureau in 1961. Only two-thirds of the plans were ex- of Economic Research15 has forecast the growth clusively long-term savings plans; the others per- of private pension plans through the 1970’s. Fore- mitted members to withdraw their accumulated casts of the coverage of these plans vary, depend- contributions before retirement. ing upon assumptions regarding such factors as labor-force growth, changes in industrial com- position, and the economic climate for the intro- Contributions duction of pension plans. The National Bureau of Economic Research combined various assumptions An estimated $5.6 billion was contributed in to arrive at three estimates-low, medium, and 1962 by employers and employees to finance pri- high. The end-of-year estimates of coverage for vate retirement systems-approximately $4,740 1969 ranged from 31.1 million to 34.3 million and million by employers and $820 million by em- for 1979 from 38.1 million to 46.1 million. ployees. Employer contributions have been re- The proportion of employees covered by non- markably stable-about 85 percent-from 1950 insured plans has increased gradually from 1950 through 1962. Employers cont,ributed more, how- through 1962, and almost all the 1962 increase ever, for noninsured plans (about 88 percent) occurred among such plans. In the insured plans than for insured plans (80 percent). 100,000 persons were added in 1962, compared Contributions to private retirement plans rose with about 800,000 among noninsured plans. At $250 million or 4.7 percent in 1962. This increase the end of 1962 the 17.9 million persons covered exceeded those in the 3 preceding years, both abso- by noninsured plans represented 78 percent of the

16National Industrial Conference Board, EmpZoyee I5 National Bureau of Economic Research, The Use8 of Savings Plans in the United States (Personnel Policy Economio Reeearch, @rd Annual Report, 1963. Study No. 184), 1962.

BULLETIN, APRIL 1964 17 lutely and relatively. Contributions to insured Beneficiaries plans, which had declined in 1960 and 1961, The number of persons receiving monthly bene- showed an $80 million increase. The gain in fits under private pension plans passed the 2- contributions to noninsured plans ($170 million) million mark at the end of 1962 (table 5). The was about twice t,hat of 1961 but less than the 1962 increase (190,000) was higher, both abso- 1960 increase. lutely and relatively, than that in 1961; it equaled Finlike the growth in coverage, the absolute in- the highest absolute increase recorded since the crease in contributions during the period under series began but was lower relatively than in any review has not been steady; on t,he cont.rary, the other year except 1961. amount, of increase has been dropping. Contribu- Both insured and noninsured plans increased tious rose by $1.4 billion from 1950 to 1954, $1.2 their beneficiary rolls by about 10 percent during billion from 1954 to 1958, and only $0.9 billion 1962-the noninsured from 1,340,OOOto 1,470,OOO from 1958 to 1962. and the insured from 560,000 to 620,000. As a The reduced growt,h in 1959-62 may be the result, beneficiaries from noninsured plans con- result of several factors. Federal legislation in tinued to make up approximately 70 percent of 1959 excluded from taxation the investment in- the total number, a proportiou that has not varied come attributable to insured pension reserves, thus significantly since 1950. enabling insurance companies to reduce rates on An overwhelming proportion of private pen- group annuity plans. Income from investments sion plan beneficiaries are also receiving benefits has been rising, reflecting the increased reserves under the Federal programs of old-age, survivors, of pension plans and the higher interest rates and and disability insurance and railroad retirement,. dividend payments of the late 1950’s and early Probably only about 200,000 of the 2.1 million 1960’s, as well as the greater net profits on the beneficiaries under private plans are not receiving sale of assets. Moreover, many older pension plans concurrently one of these Federal benefits. It is may have liquidated all or a subst,antial propor- likely that the number of private pensioners not tion of their past-service liabilities and are now receiving such benefits because. they withdrew making contributions to finance current-service from the work force before they had sufficient, liabilit,ies only. work experience to be eligible for benefits is The relative decline in contributions in the late rapidly declinin g. It is also likely t,hat this decline 1950’s is also reflected in the avergge employee- may be offset by an increase in the number of early employer contribution. For all pension plans the retirements under private pension plans (before average amount contributed was the same ($245) age 62-the qualifying age for old-age benefits in 1961 and 1962 and was the lowest in the history under the Social Security Act). of the series. Although the average contribution As would be expected, the number of benefi- for insured plans in 1962 ($301) was $7 higher ciaries grew more rapidly from 1958 to 1962 than than in 1961, it was still considerably lower it did earlier; t,he increase of 690,000 may be than that prevailing during the 1950’s. In con- compared with those of 520,000 in 1955-58 and trast, the average contribution to noninsured 430,000 in 1951-54. Projections by the National plans, which in 1962 was $229, has fluctuated with- Bureau of Economics Research suggest an even in a narrow range-from a low of $210 in 1961 more accelerated growth in future years. Accord- and 1954 to a high of $239 in 1960. ing to the Bureau’s preliminary end-of-year esti- These averages are obtained by dividing total mates, t,he number of beneficiaries will rise to 3.6 annual contributions by the average number of million in 1969 and to 6.3 million in 1979. employees covered during the year. Contributions The number of beneficiaries has increased much under insured plans are on a net basis, with divi- more rapidly than coverage. In 1950, there was dends and refunds deducted. Those under non- only 1 beneficiary for about 22 covered workers. insured plans are, for the most part, on a gross By 1954 the ratio had declined to 1 for every 16, basis, and refunds appear as benefit payments. and in 1962 there was 1 beneficiary for 11 covered For pay-as-you-go (unfunded) plans, contribu- workers. The National Bureau of Economic Re- tions have been assumed to equal the benefit search estimates of covera.ge and beneficiaries as- payments. sume that in 1979 there will be 1 beneficiary for

18 SOCIAL SECURITY every 6 or 7 covered workers, depending on which semblecl fundecl plans in the types and levels of of the three coverage estimates is used. benefits provided. Although supplementary unfunded plans (not providing normal retirement benefits) included a. variety of benefits, only disability retirement and death benefits were avail- Benefits able to most of their members.lS In 1962, for the first time, benefit payments Because an unfunded plan has not accumulatecl from private retirement plans amounted to more funds specifically allocated to pay benefits, a par- than $2 billion. Of the total, noninsured plans ticipant’s benefits are usually less secure than if l)aid $l,GO million or 77 percent, and insured he were covered by R funded ph. The security l)lans l)aid the balance. The proportions hare attwhecl to benefit expectations from unfunded not chuged significantly since the series began. plans, therefore, depends almost exclusively on The 1962 increase of $230 million was the largest the company’s financial resources. The Social recorded for any year; the percentage increase, Security hdministrat,ion has examined some however, was the lowest. Benefit payments nd- limitecl finnncial data on +2 companies with basic rnncd more during the most recent &-year period unfmlded pension plans whose membership than they did earlier. Moreover, benefits have in- totnlecl 277,000-about 60 percent, of the total creased much more rapidly than contributions. In coverage of basic unfunded plans filed in compli- 1950 they equaled 18 percent of contributions; in ance with the Welfare ancl Pension Plans I)is- 1954, 21 percent ; in 1958, 28 percent,; and in 1962, closure Act.l!’ The study concluded that most of 39 percent. the companies whose basic pension plan was un- Benefit- outlays per beneficiary were relatively funded hare had and may continue to have strong stable during the first 4 years but. increased slowly financial positions. A few companies with plans tluring 1955-58 and 1959-6%. The rise was less, covering relatively few members have had and however, than that in wages and salaries in pri- may cant hue to have financial difficulties. vate industry. The average payment, went up Pension plan revisions cluring 1962 emphasized about 25 percent from 1954 to 1962, while average provisions designed to encourage retirements. :lmual wages in private industry increased 34 Agreements in the basic steel industry, for ex- 1)ercent.l’ ample, liberalized eligibility requirements for Tncluded among noninsured plans are plans early retirement for workers aflected by permn- that choose to make benefit payments as they be- nent plant or clepartmental shutdowns. After come due without, advance financing-typically ,Jnnuary 1, 1963, employees in the basic steel in- termed “1~:~~-:‘s-you-go” or “unfunded” plans. At, dustry who are eligible for retirement and who the request, of and iii cooperation with the Social continue to work after reaching age 65 will hare Security Aldministration, the Bureau of Labor their supplemental retirement credits recluced by Statistics has studied the m:Ljor provisions, cover- 10 percent, for each 3 full months that they work. age, and types and levels of benefits of the uii- l’nder the Teamsters Union’s area pension plan funded plans filed in compliance wit11 the JYelfare (with about 175,000 members) for the Central and Pension Plans Disclosure Act. The study States aiicl the Southeast and Southwest regions, showed that the basic unfunded plans, which tlie age requirement for normal retirement was l)rovide normal retirement benefits, closely re- changed, effective in 1963, from age 60 with 20 years of service to age 57. Other plans-including those of the Dann Corporation, the American Ii Precise data on arerage monthly or annual retire- Viscose (“ornpally, and the Humble Oil ancl Refin- ment benefits cannot be derived from table 3, since the iilg (‘onil):~iiy-encoLir~~ge retirement by increas- benefit payments reported include lump-sum benefits under noninsured plans. These lump-sum payments con- sist chiefly of (1) refunds of employee contributions to members who withdraw from contributory plans before *8 Harry L. T.evin, “Unfunded Prirate Pension Plans,” retirement, (2) payments of the excess of employee con- .l/o~~thZ~/Lubov Rccicw, December 1963. tributions to survivors of lwnsioners who die before they lo .JoseJ)h Krislor, “Financial Position of Companies receive in retirement benefits an amount erplal to their with I’nfunded Pension Plans,” Social Security Admin- contributions, and (3) lumpsum payments made mlder istration, Division of Research and Statistics, SnaZyticaZ tleferretl J)rofit-sharing J)lans. Sotc A’o. 1, dlnil 1963.

BULLETIN, APRIL 1964 19 ing the benefits paid to workers retiring before covered by pension plans in 1955 were members of reaching normal retirement age. plans that provided for vesting. A study of all pension plans on tile with the A study by the Pl’ational Industrial Conference Labor Department, that, have more than 5,000 par- Uoard2” of 700 companies suggests that involun- ticipants showed that, of the 9.7 million covered tary retirement practices among companies with workers, 7.2 million or 74 percent were members of private pension plans have probably increased in plans providing early retirement, benefits. To recent years, and that> as a result there are proba- qualify for early retirement. benefit most workers bly fewer job opportunities for workers over age had to attain age 55 or 60 and also had to have 65. The study showed that relatively few changes 10 or 15 years of service.2o were made in retirement practices from 1955 to Data on the actual age at which members of 1961. Only 44 companies reported any changes; private plans retire are not readily available, and one liberalized its provisions, and 43 adopted more it is therefore difficult to estimate the number restrictive practices. Of the 5*2 companies that of employees who take advantage of early ret,ire- reported the proportion of all employees who ment provisions. A studyZ1 of the retirement ages t,ypically workecl after reaching normal retire- of workers covered by negotiated pension plans of ment, age, 304 companies (56 percent) indicated the three big automobile companies (General that fewer than 5 percent of the employees worked Motors, Chrysler, and Ford) showed a sharp de- beyond age 65. cline in the proportion of workers who waited for the compulsory retirement age of 68 and an increase in the proportion retiring before reaching Reserves age 65 (the normal retirement age). From 1953 to 1959, the proportion of workers from these three At the end of 1962, $60.7 billion had been ac- companies who retired at age 68 declined from 48 cumulated in reserves held by insured and non- percent to 14 percent; the proportion elect.ing to insured private retirement programs-$5.4 billion retire before age 65 increased from 4 percent to more than at, the end of 1961. Although the rate 19 percent. Preliminary and unpublished data of increase (10 percent) was the lowest since 1950, t,hrough 1962 shorn a continuation of this trend. the absolute rise was the second highest, recorded. In addition to emphasizing provisions encour- hbsolute increases in reserves were greater in aging retirements, some plans liberalized the nor- 1959-62 ($21.2 billion) than in 1955-58 ($16.4 mal retirement benefit during 1962 and added or billion) and 1951-54 ($11.4 billion). The average liberalized vest,ing provisions; a few plans intro- amiual increase during 1959-62 was $5 billion, duced widows’ benefits. The study of t,he larger compared with $4 billion during 1955-58 and less plans on file with the Department of Labor than $3 billion during 1951-54. The percentage showed that about 5.7 mil’!on or three-fifths of increase w-as greatest from 1950 to 1954, when the 9.7 million persons covered in 1962 were mem- reserves almost doubled ; there was a 5-l-percent bers of plans with vesting l)rovisions.22 Among rise from 1958 to 1962. The Kational Bureau of them were more than 1 million members of 58 Economic Research estimates that private pension plans who would receive vested benefits only if plan reserves will total $118 billion at the end of they were involuntarily separated. Though no 1969 and $223 billion 10 years later. These esti- comparable study exist,s for earlier years, it had mates suppose growing accretions, averaging $11 been estimated that only about half the employees billion a year during the 1970’s. The increase in reserves held by noninsured plans in 1962 was $3.9 billion, about the same as in 1961. Insured plans added $1.4 billion to their 20Department of Labor, Report on Manpower Reguire- mente, Resources, Utilization and Training (1963), table reserves, equaling the 1961 increase but substan- E-12. tially less than that for 1959. The proportion of 21Harold L. Orbach, “Social Values and the Institu- reserves held by noninsured plans has increased tionalization of Retirement,” in Richard H. Williams, Clark Tibbitts, and Wilma Donahue, Processes of Aging: Social and Psychological Perspectives (Prentice-Hall, 23Miriam C. Kerpen and Harland Fox, “Mandatory Inc., 1963), volume II, pages 399400. Retirement Practices, 1961,” Mawgemcnt Record, Febru- 22Department of Labor, op. cit., table E-9. ary 1962.

SOCIAL SECURITY steadily, from 52 percent in 1950 to 57 percent in and 34 percent in 1959. Investments in Govern- 1954, to 61 percent in 1958, and to 64 percent in ment obligations declined from 10 percent of the 1962. total in 1959 to 7 percent in 1961 and investments As indicated by the reports of the Securities in bonds from 45 percent to 41 percent. and Exchange Commission,21 the portfolios of L4 recent study of collectively bargained multi- corporate pension funds have shifted from U.S. employer planszG showed distinct differences in Government securities to stock and other high- the asset holdings among plans that had a cor- yield investments. In 1962, corporate pension fund porate trustee and those reporting individual investments in common stocks (based on book trustees. The assets of the corporate-trusteed plans value) represented 39 percent of total assets, com- were similar to those of all noninsured plans, pared with 30 percent in 1958 and only 16 percent with most of the assets in nongovernment bonds, in 1950. The amount invested in mortgages in- some in common stock, and little in Government creased to 3 percent in 1962 from 1 percent in securities. The assets of individual-trusteed plans 1955 (the first year for which separate data are were heavily invested in Government bonds (30 available). percent,) and mortgages (32 percent). Investments in Gorermnent securities declined Some shift in asset holdings has also occurred from 32 percent in 1951 to 6 percent in 1962. in the reserves of insured pension funds.27 In Most of this shift occurred in the early 1950’s, 1951 the assets of all insurance company reserves and by 1958 only 9 percent of corporate pension (including pension reserves) were concentrated in fund investments was in Govermnent securities. nongovernment bonds (38 percent), mortgages Investments in corporate bonds, which increased (28 percent), and Government bonds (20 percent). somewhat during the early 1950’s to a high of 54 The proportion invested in Government bonds percent. in 1957, have dropped significantly since declined gradually to 9 percent in 1962, and the t,hat year and in 1962 were only 45 percent. of the proportion invested in mortgages increased to total-an alltime low. 35 percent. Investments in corporate bonds have A study of the assets of the 100 largest plans2” fluct,uatecl only narrowly since 1951; in 1962 they filed in compliance with the Welfare and Pension represented 39 percent of the total. all other Plans IXsclosure Act indicates a similar pattern assets equaled 1’7 percent (including 5 percent in and shift in assets from 1959 to 1961. Forty per- stocks) in 1962 and 14 percent (including 3 percent of the assets of these 100 plans (including a cent in stocks) in 1951. few welfare plans) was invested in stocks in 1961

26Joseph J. Melone, Collectively Bargained Multi- ** Securities and Exchange Commission, Corporate Pcn- Employer Pcwioa Plans (Richard D. Irwin, Inc., 1963), siol& Funds, annual series. pages 69-70. 25Department of Labor, TVcZfa~c and Pcnsiols Statis- 27Institute of Life Insurance, Lift I,wwancc Pact Book tics: The 100 Largest Plans, 1959-1961, 1963. (1963), page 65.

totals were 2.3 percent and ahnost 4.5 percent Notes and Brief Reports higher than those in 1961. Average annual taxable earnings in 1962, estimated at $2,940, were Employers, Workers, and Earnings about 2 percent higher than the average a year earlier. Under OASDI” Total annual earnings (which include both taxable and nontaxable earnings) were estimated at In the calendar year 1962, according to prelimi- $288 billion, an increase of almost 5.5 percent nary estimates, 74.6 million persons had earnings from the 1961 total. Average annual earnings, of $219 billion that. were taxable uader the old-age, estimated at, $3,860, were 3.2 percent higher than survivors, and disability insurance program. These in the preceding year.

* Prepared by Roslyn Arnold, Division of Research and The changes from 1961 to 1962 in employment Statistics. and earnings were the result of improvements in

BULLETIN, APRIL 1964 21