Fringe Benefits Unraveling in US
CORPORATE fringe benefits are shrinking in the United States.
With unemployment remaining high and job opportunities relatively scarce, there is less competition among employers for productive workers. Companies facing hard times, or simply seeking to boost profits, find they can trim fringes - costing $1 trillion across the nation - without losing employees.
A survey by the Employers Council on Flexible Compensation found that 269 of its member companies will reduce benefits this year and nearly as many plan to make cuts in 1994.
Some companies are requiring employees to pay a greater proportion of the cost of health insurance or switching to a managed-care program in an attempt to better control soaring medical bills. Some are cutting back on the health coverage of retired employees, especially since a new accounting standard requires corporations to make financial provisions for postretirement medical benefits.
More and more companies are altering pension plans to reduce costs. In 1979, 43 percent of the US work force was accruing credit toward an employer pension. By 1988, the figure was 33 percent and heading south, according to a study by Steven Sass, an economist at the Federal Reserve Bank of Boston.
Many employers have shifted all or a portion of their retirement benefits to profit-sharing or 401(k) plans. These, in Mr. Sass's view, are savings plans, not real pensions. They cost the employer less - perhaps 2 to 3 percent of the total payroll compared with an average 7 to 8 percent for the usual "defined-benefit" pension plan which provides the retiree (and perhaps a spouse) with a pension as long as he or she lives.
With the savings plans, the employee eventually takes on the long-term risks of inflation and the security of and the return on investments in the plan. Some employees will use money from such plans for buying a house or financing their children's college education, leaving little for retirement. Sass sees a danger of a greater number of future retirees having to rely on minimal income outside of Social Security benefits.
"It is an accident waiting to happen," he warns.
Another factor in the unraveling of job-based entitlements is the reduction in job security. Fewer workers are spending lifetimes with one or two employers. During the 1980s, many lost jobs in a wave of mergers and acquisitions. In the 1990s, even blue chip companies are laying off white-collar employees and middle managers along with blue-collar workers. Employers are hiring more temporary workers, thereby avoiding the cost of fringe benefits and reducing the trauma of future staff cuts.
Mary O'Connell, a law professor at Northeastern University, notes how work and fringe benefits are closely tied together in the US. Writing in the spring issue of American Prospect, she observes: "The American welfare state is as embedded in private employment as it is embodied in public programs. Paid work is not an exit from the welfare state, it is a point of entry. For the fortunate, work is a link to a vast array of public and private benefits that pay for our health care, support us in old age, tid e us over between jobs, care for us if we are injured or disabled, and support our dependents in the event of our untimely death."
The Social Security system is tied to work. So are worker compensation, company pensions, and health insurance plans.
This system reserves its most generous protections for well-paid employees who stick with a single employer for a long time. But, she writes, fewer workers nowadays qualify. Moreover, with a high divorce rate, fewer women who have given up careers to raise children are adequately covered by benefits of husbands.
Professor O'Connell calls for rethinking this work-based welfare state to embrace mobile workers now shut out of the economic security system. All workers, she says, should have access to the network of protections that have been developed over the decades for "good workers."
One change may be coming. The Clinton administration is moving toward a health insurance scheme that will cover more Americans, including those working for companies without plans. A study by Families USA earlier this month held that almost 75 million individuals have inadequate health insurance.