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February 25, 2009
Employers Spend Nearly $8 Trillion on Total Comp: Where Does the Money Go?
A new report by the Employee Benefits Research Institute has the latest data on what employers are spending on total compensation, including the percentage of costs allocated for health care and retirement benefits. The data, from the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) reveals some telling trends.

By the end of 2007, employers had spent $7.8 trillion on total compensation—almost a 35% increase (!) in such spending since 2000. Most of this money—approximately $6.4 trillion (or 81.6%)—was spent on wages and salaries in 2007, while $1.5 trillion (16.4%) was spent on benefits.

A breakdown of benefits spending shows that retirement benefits are the largest benefits expense. However, BEA data indicates that retirement benefits costs have declined relative to healthcare benefits costs. In 1960, 59.7% of employer spending on benefits was for retirement benefits, but it has declined to 47.7% of total spending.

Meanwhile, in 1960, healthcare benefits costs accounted for just 14.4% of total benefits costs, but now account for 42.8% of all benefits costs. The report notes that there have been several years since 1981 where employer spending on group health insurance had double digit increases, most recently as high as a 12.7% increase in 2000. Fortunately for employers, the rate of increase in health spending declined to 5.0% by 2007.

Finally, “other” benefits costs (unemployment insurance, workers’ compensation, and life insurance) accounted for just 9.5% of employer benefit spending in 2007, a decline from 25.8% in 1960.

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