	Background

Currently, U.S. workers rely primarily on their employers to provide both  wages and benefits (such as paid leave, retirement, and health insurance)  as part of a total compensation package, with wages comprising  approximately 70 percent of total compensation. It also excludes the value of the premiums from the  calculation of Social Security and Medicare payroll taxes for both  employers and employees. Average Compensation Costs Grew by 12 Percent between 1991 and 2005, with Benefits Outgrowing Wages by 8 Percentage Points

Private employers’ average cost of total compensation (comprised of  wages and benefits) for current workers grew by 12 percent between 1991  and 2005, but benefit costs outpaced wages in the most recent years after  controlling for inflation. The overall real  costs of benefits grew by 18 percent, while real wages grew by 10 percent. 1). Paid leave had traditionally been the most costly  benefit to employers, but by 2005, the cost of health insurance equaled that  of paid leave. Employers’ Costs for Health Insurance and Retirement Income Increased over 27 Percent between 1991 and 2005

The increase in the real cost of a total benefits package from 1991 to 2005  was largely composed of increases in the real cost of providing health  insurance and retirement income. 2.) Of  the three benefits, retirement income was the least costly, even though it  grew by an estimated 47 percent during the period, largely between 2004  and 2005. Employees’ Access to Benefits Remained Generally Stable, but Employees Face Greater Costs and Assume More Investment Risk

During the time under review, employees’ access to benefits has remained  stable, but participation rates declined for health benefits, some costs have  shifted to employees, and they have assumed more investment risk. Also, employers continued to  pay approximately the same share of the premium for employee health  insurance, but a smaller percentage of employees participated as the real  dollar amount of the premiums increased. With regard to paid leave, holidays and vacations were generally available  to all workers between 1990 and 2003, but a smaller percentage of workers  had access to personal leave and sick leave. 3). 4). Roughly half of all workers participated in an  employer-sponsored retirement plan, and closer to 60 percent of those  who were full-time employees did so. Experts Agreed That Rising Benefit Costs Are Forcing Private Employers and Their Employees to Make Trade-Offs between Wages and Benefits

Experts who reviewed our data found it reflected their experience and  asserted that rising benefit costs have been leading employers and  employees to make increasingly difficult trade-offs between wages and  benefits. In addition, employers are considering changing the way they  offer compensation. Aside from such different viewpoints, most panelists noted that the  employer-sponsored system of benefits in its current form may not be  sustainable, largely because productivity growth is unlikely to support  rising benefit costs. Agency Comments

We requested comments on a draft of this report from the departments of  Labor and Health and Human Services. To determine the possible implications of changes for private systems, we  convened a panel of 17 experts representing the human resources field,  industries, unions, and academia.
Why GAO Did This Study

Because most workers rely primarily on their employers to provide both wages and benefits as part of a total compensation package, the trends in the costs and availability of employer-sponsored compensation have a significant bearing on workers' well-being. Through tax preferences and payroll taxes, federal government policy also has a bearing on employees' access to benefits and on the costs carried by employers. The federal government provides significant tax subsidies for both health insurance plans and qualified retirement plans. In addition, workers and employers are required to pay taxes that fund Social Security and Medicare, programs intended to help provide for workers' economic security and peace of mind in retirement. In this report, GAO examined federal data on private employers' costs for active workers and sought perspectives from 17 experts to identify (1) recent trends in employers' total compensation costs; (2) composition of the trends; (3) whether employees' costs, participation, or access to benefits changed; and (4) possible implications of the changes for private systems. GAO received technical comments from the Departments of Labor and Health and Human Services and from some of the experts GAO consulted. These comments were incorporated as appropriate.

What GAO Found

Private employers' average real cost of total compensation (comprising wages and benefits) for current workers grew by 12 percent between 1991 and 2005. The real costs of benefits grew by close to 18 percent, while real wages grew by 10 percent. Wages and benefits increased by about the same percentage for most of the period until 2002, after which time real wages began to stagnate and real benefit costs continued to grow. The increase in the cost of a total benefits package from 1991 to 2005 was largely composed of increases in health insurance and retirement income costs. Paid leave had been the most costly benefit to employers, but by 2005, the cost of health insurance equaled that of paid leave. In comparison to paid leave and health insurance, retirement income was the least costly, but it grew by an estimated 47 percent. During the time under review, employees' access to most benefits remained stable, but participation rates declined for health benefits as the real dollar amount of the premiums increased. Between 1991 and 2003, roughly half of all workers participated in employer-provided retirement plans. Holidays and vacations were generally available to most workers, but a smaller percentage of workers had access to personal and sick leave. A panel of experts from a variety of backgrounds agreed that rising benefit costs are forcing private employers and their employees to make increasingly difficult trade-offs between wages and benefits. They noted that the employer-sponsored system of benefits in its current form may be unsustainable, largely because productivity growth is unlikely to support the rising costs of some benefits, especially escalating health insurance costs.