A new analysis finds that employees without access to health care coverage other than their employer's plan are more likely to defer retirement in order to retain coverage. It further found that employees with defined benefit plans are more likely to retire in any given year than their counterparts with defined contribution plans.
As part of the University of Michigan's Health and Retirement Study, a biannual survey of 22,000 older U.S. workers, Watson Wyatt found that employees who do not expect to receive employer-provided health care coverage in retirement are 16.5% less likely to retire in any given year than those who will have access through another source (such as employer-sponsored retiree health insurance, a spouse's health insurance plan, or public health insurance).
"The link between health care and retirement security is just one of the factors affecting older workers' decisions about retirement," Mark Warshawsky, director of retirement research at Watson Wyatt, explained in a press release. "Most factors point to an aging workforce, driven by delayed retirements. A holistic view of these factors will help employers develop a better understanding of how their workforce might change in coming years and what that might mean for their business."
The analysis also found that household wealth, public policies (such as increases to the age at which individuals become eligible to receive full Social Security benefits), and retirement plan types are other important factors that impact retirement decisions.
Watson Wyatt found that employees who only have a defined benefit (DB) plan are 4.1% more likely to retire. DB plans, they explain, "encourage a more timely retirement" than defined contribution (DC) plans because DB plans "provide guaranteed retirement income." In DC plans, such as 401(k)s, "participants bear the dual risks of fluctuation in their retirement accounts and outliving their retirement funds."
Kevin Wagner, senior retirement consultant at Watson Wyatt, made the following observations in the Wyatt release: "Retirement is the result of a complex decision-making process that is influenced not only by employees' benefit packages but also by environmental factors. When the market booms, DC plan participants might retire just when companies need to add workers, and when there are market busts, DC plan participants might stay at work just when companies want to reduce the size of their workforce. To effectively predict and manage workers' exit from the workforce, employers need to take a comprehensive view of their benefit programs and tailor their retirement programs to meet both employee and employer needs."