MONEY WE HAVE; WILL WE LACK:

Comparing Pensions Around the World: U.S. businesses do pay the most for employee retirement, but rising costs are now becoming a global phenomenon (Business Week)

It's a familiar theme with corporate lobbyists in Washington: U.S. companies aren't playing on a level global field. One of the inequities regularly cited is retiree benefits. Many of the biggest U.S. companies pay millions toward retiree pensions and medical costs, and then must go to market against rivals based in countries where medical care and retirement are often state-run.

Two recent analyses by pension experts at Mazars in the European Union and Watson Wyatt in the U.S. show that differences do exist from country to country. And while the U.S. appears the most expensive of these Western markets, in most developed economies, companies are footing a lot of the retirement bill, whether it's through state taxes or direct company pensions. The differences may be starker in developing economies, but there local data are scarce.

Looking at a person making $72,000 a year, Mazars and Watson Wyatt analyzed how much an employer would contribute to his or her retirement here and abroad. According to Watson Wyatt's Syl Schieber, a U.S. company would put 6.2% of this worker's salary into Social Security and 1.45% into Medicare. So, these government programs would cost 7.65% of salary.

RISING NUMBERS. Private costs, or employer plan costs, vary. But assuming this employer offers both an old-fashioned defined benefit pension plan and a 401(k), and that the employee contributes the maximum to his 401(k) and retires at age 65 after 40 years at the company, his employer would contribute a steady 3% to the 401(k) and a rising percentage of salary to the pension plan. At 30, it might be 1% of salary, by 65, 9.4%.

Overall, making some assumptions about the age of the employer's average worker, Schieber finds the pension cost would be at least 3.1% of salary.

If that employer offered retiree health care as well, the contribution would start at 2.2% of salary. All told, Schieber figures this employer would be paying at least 16% of salary, or $10,261 a year, on retiree benefits. And with more generous packages and a shorter tenure at the company, possibly as much as 29.7% of salary.

By contrast, Mazars found a wide variety of corporate expense in the European markets they looked at, though all are somewhat cheaper than in the U.S.

In other words, more than enough to fully fund a generous Social Security/401k, an HSA, and a personal Unemployment Account.

Posted by Orrin Judd at July 15, 2004 9:24 PM