In this Beyond the Numbers, we review the evolution of private industry health and retirement plans (with a focus on defined contributions and savings and thrift retirement plans) and provide an analysis using recent estimates from the National Compensation Survey (NCS). Where applicable, we refer back to a 1990 article by George Stelluto and Deborah Klein in the Monthly Labor Review in which they discussed historical trends in employee compensation from the 1930s through 1980s and offered information on future expectations for compensation developments

Meharenna, Ruth

Works, Richard

Munich Personal RePEc Archive

MPRA
Munich Personal RePEc Archive
Compensation trends into the 21st
century
Richard Works and Ruth Meharenna
U.S. Bureau of Labor Statistics
22 March 2019
Online at https://mpra.ub.uni-muenchen.de/92904/
MPRA Paper No. 92904, posted 31 March 2019 11:25 UTC
Compensation trends into the 21st century 
By Richard Works and Ruth Meharenna 
March 22, 2019 
1 
 
During the Second World War, the War Labor Board controlled increases in cash wages in order to limit 
inflationary pressures from competition in the labor force.1 This encouraged employers to use 
employee benefits as a form of noninflationary compensation. After the war, tax incentives made 
offering employee benefits more appealing to employers. The shape of these benefits continued to 
evolve, however, with wages and salaries rising at a slower pace than employer costs for employee 
benefits.  
In this Beyond the Numbers, we review the evolution of private industry health and retirement plans 
(with a focus on defined contributions and savings and thrift retirement plans) and provide an analysis 
using recent estimates from the National Compensation Survey (NCS). 2 Where applicable, we refer 
back to a 1990 article by George Stelluto and Deborah Klein in the Monthly Labor Review3 in which 
they discussed historical trends in employee compensation from the 1930s through 1980s and offered 
information on future expectations for compensation developments.  
Health insurance 
Between the 1980s and early 2000s, health insurance costs fluctuated.4 Chart 1 shows that health 
benefit cost increases tended to outpace cost increases for total benefits. Stelluto and Klein predicted a 
rapid rise in healthcare costs. The increases in health costs trended more closely to changes in total 
benefit costs since 2011.  In the last 2 years, health benefits cost increases are lower than total benefits, 
which hasn’t occurred since the mid-1990s. The 12-month increase in private industry benefit costs was 
1.9 percent–2.8 percent each quarter of 2017 and 2018, while the costs for health benefits experienced a 
12-month increase from 1.1 percent–1.9 percent for the same time period. 
 
Chart 2 uses data from the Employer Costs for Employee Compensation (ECEC) series. The employer 
costs per employee hour worked in March 1991 for private industry for total benefits and health 
 
 
insurance were $4.27 and $0.92, respectively. In March 2000, the costs were $5.36 and $1.09; and in 
March 2018 the costs for total benefits and health insurance were $10.41 and $2.58, respectively. 
Increases in costs for healthcare were also apparent in the Consumer Price Index:5 In 59 of the 73 years 
from 1936 to 2008, including an unbroken period from 1981 to 2007, the inflation rate for medical care 
increased more than the rate for all items in that index.6 
 
As employers sought to control rising healthcare costs, Stelluto and Klein expected an increase in the 
use of core benefits for hospitalization and surgery with employer-financed accounts. These accounts 
would be offered and administered by employers and would provide a way for employees to set aside 
pretax dollars out of their paycheck to pay for a share of insurance premiums or medical expenses not 
covered by their health plan. With these types of accounts, the employer also may make contributions. 
This method of controlling healthcare costs is the defined contribution approach to healthcare, 
essentially analogous to defined contribution retirement plans, which were beginning to increase in use 
at this time. 
Today, we know these accounts as health savings accounts (HSAs). An HSA is an account that allows 
employees to pay for future medical expenses with tax-exempt contributions. HSAs must be used in 
conjunction with employer-provided, high-deductible health plans with an annual maximum limit on 
out-of-pocket and deductible expenses. Other features of HSAs include the rollover of unused 
contributions, the portability of accounts, and tax-free interest earned on the funds in the account. 
Given Stelluto and Klein’s expectation of an increase in the use of HSAs, how prevalent are employer-
provided HSAs today? 
Table 1 shows the percentage of workers with access to HSAs in private industry for March 2018. Data 
show that 28 percent of all workers had access to HSAs. The “all workers” category can be further 
broken down into occupational categories. Management, professional, and related occupations had the 
highest access to HSAs, and service occupations had the lowest access to HSAs. Likewise, full-time 
employees had a higher rate of access when compared to part-time employees. However, the 
difference between union and nonunion workers was not statistically significant. Workers with earnings 
 
 
at the highest 25 percent had more access to HSAs than workers with earnings in the lowest 25 percent. 
Likewise, workers in establishments with 100 or more workers had more access to HSAs than those 
working in smaller establishments with fewer than 100 workers. 
 
Retirement plans 
With time, more retirement plans were defined contribution rather than defined benefits plans. Defined 
contribution retirement plans had a built-in portability that allowed for the transfer of retirement 
account balances from one establishment to another.  Traditional defined benefit pension plans did not 
typically offer this feature. Stelluto and Klein had expected future designs of retirement plans to be 
more portable.  In fact, they suggested that the future of these pension plans would depend upon their 
portability. However, transferability may not be an issue as one can take the cash value of a defined 
benefit plan and roll it into a 401(k), which is the same as one would do with a defined contribution plan 
when switching employers. To analyze retirement plans further, this section investigates the different 
types of retirement plans as well as highlights selected provisions. 
Defined benefit plans are pension plans that provide guaranteed income during retirement, and they 
are often based on a formula that considers years of service and a percentage of a worker’s salary. A 
defined contribution plan specifies the level of employer contributions and places those contributions 
into individual employee accounts (such as IRAs). The level of funds in the account at the time of 
retirement determines the retirement benefits received in defined contribution plans. Employers have 
offered defined benefit plans to their employees, but the high costs associated with these plans caused 
some employers to switch to offering defined contribution plans.7 
Table 2 presents access and participation rates for retirement benefits in March 2018. Sixty-eight 
percent of all workers had access to a retirement plan and 51 percent of workers participated in a 
retirement plan. Across all workers, more had access to defined contribution plans than defined benefit 
plans. Union workers had higher access rates to defined benefit but lower access to defined 
contribution plans compared to nonunion workers. Defined contribution plans had higher rates of 
participation across the occupation groups. This has been the trend over the years as employers have 
 
 
shifted away from traditional defined benefit pension plans towards portable defined contribution 
plans.8 
 
Management, professional, and related occupations had the highest access and participation rates in 
defined contribution plans. Service occupations had the lowest access and participation rates for both 
defined benefit and defined contribution plans. Natural resources, construction, and maintenance 
occupations had the same level of participation in defined benefit plans as management, professional 
and related, even though they had 4 percentage points less access to defined benefit plans. The 
difference between production, transportation, and material moving occupations and the natural 
resources, construction, and maintenance occupations having access to defined benefit plans was not 
statistically significant; likewise, the difference in participation in defined benefit plans was also not 
statistically significant. 
 Three alternative defined contribution plans 
In savings and thrift plans, employees may contribute a predetermined portion of earnings to an 
account. Employers may match a fixed percentage of employee contributions or a percentage that 
varies by length of service, amount of employee contribution, or other factors. In a deferred profit-
sharing plan, employee shares remain in a trust with other accrued benefits until the age of retirement 
in order to qualify for a lower income tax rate. With money-purchase pension plans, fixed employer 
contributions go to employee accounts. This is usually a percentage of employee earnings. Employers 
also make profit-sharing contributions to these plans at their discretion. 
Table 3 shows the percentage of private industry workers participating in the different types of defined 
contribution plans for 2017. The data show that a larger percentage of all workers participated in a 
savings and thrift plan, compared with a deferred profit-sharing or money-purchase pension plan. 
Nonunion workers had a higher level of participation in savings and thrift plans than union workers.  
 
 
 
Natural resources, construction, and maintenance workers had the lowest participation rate in savings 
and thrift plans in 2017 at 64 percent, compared with sales and office workers who had the highest 
participation rate at 81 percent. Natural resources, construction, and maintenance workers also had the 
lowest participation rate in deferred profit sharing in 2017 at 13 percent, compared with production, 
transportation, and material moving workers at 26 percent participation. However, production, 
transportation, and material moving workers had the lowest participation rate in money-purchase 
pension plans in 2017 at 11 percent, compared with service occupations at 24 percent participation. 
Since savings and thrift plans are the defined contribution plans with the highest rates of participation, 
we’ll investigate vesting and provisions for these types of plans. It is worth noting that Stelluto and 
Klein only expected defined contribution plans to increase and the use of pensions to decrease. 
However, we now have savings and thrift plans, and the authors did not make any projections about 
these plans. Therefore, they are absent from the next section. (See table 3.). 
Savings and thrift plans 
Vesting provisions give employees a nonforfeitable right to retirement plan benefits funded by the 
employer’s contribution when changing jobs or otherwise ending employment before becoming 
eligible for payout. When conditions for deferred full vesting (cliff vesting) are satisfied, all accrued 
benefits are receivable at a later age. Under graded vesting, an initial percentage of accrued benefits is 
first earned, and the vested percentage increases as additional service is credited. An employee is 100 
percent vested immediately upon enrollment in an immediate full vesting plan. However, cliff vesting 
does not occur until an employee satisfies the service requirements for 100 percent vesting. 
Table 4 presents the percent of private industry workers participating in various types of savings and 
thrift plans for 2017. Data show that cliff vesting plans were the least common across all workers. There 
was no significant difference for the all worker category between graded and immediate full vesting. 
Graded vesting ranged from 31 percent for sales and office workers to 44 percent for production, 
transportation, and material-moving workers. Immediate full vesting ranged from 24 percent for 
service occupations to 38 percent for both natural resources, construction, and maintenance workers as 
well as sales and office workers. Cliff vesting ranged from 19 percent for natural resources, 
construction, and maintenance workers to 37 percent for service workers. In addition to vesting, savings 
and thrift plans also have various provisions that employers may choose to offer their employees. 
 
 
 
Automatic enrollment is a plan feature in which elective employee deferrals (money taken from 
employee’s salary for their retirement plan) begin without requiring the employee to submit a request 
to join the plan. With automatic enrollment, employees who do not select a contribution amount have 
a predetermined percentage of their pay deferred as soon as they become eligible for the plan. 
Automatic escalation is a plan feature used to promote savings, as a participant’s contribution to a plan 
increases at regular intervals (fixed dollar amount or percent of salary) until he or she reaches a 
predetermined contribution level or cap. 
Table 5 presents various provisions for savings and thrift plans for 2017. Fifty-five percent of private 
sector workers participated in a plan that allowed post-tax contributions (all plans allow pretax 
contributions). Thirty-nine percent of all workers participated in a plan with an automatic enrollment 
provision and 18 percent participated in a plan with an automatic escalation feature. Ninety-one 
percent of private sector workers participated in a plan that allowed the employee to choose their 
investment fund and 88 percent of all workers participated in a plan that allowed the employee to 
choose the investment fund toward which the employer’s contribution would go. Nonunion workers 
had a higher rate of workers that participated in a plan with an automatic escalation feature than did 
union workers. There was also a significant difference between the rate of workers that participated in 
plans where employees chose the investment of employee funds, versus plans for which employees 
chose the investment of employer funds. Union workers had a higher rate of workers that participated 
in plans with an automatic enrollment provision than did nonunion workers.9  
 
 
 
Summary  
This article focused on employee compensation in the 21st century, with a concentration on employer-
provided benefits. In their 1990 article, Stelluto and Klein projected changes in healthcare and 
retirement benefits. Much of what they projected came to fruition: healthcare costs increased, the use 
of HSAs became customary, and the use of transferable retirement accounts became more common. 
Based on the most recent data available, our analysis showed that increases in health costs have been 
moderate since the early 2000s. In addition, HSAs showed a prevalence in the current economy, with 28 
percent of all workers having access to these plans.  
Defined contribution plans are more prevalent among private sector workers than defined benefit 
plans, as employers favor them. Our analysis showed that the most common type of defined 
contribution plan is the savings and thrift plan. Notable features that are prominent with this type of 
plan include automatic enrollment and immediate-full and graded vesting. Currently, 40 percent of full-
time workers and 32 percent of part-time workers participate in savings and thrift plans. With 
automatic enrollment, it is the favored option and in the future, further increases to automatic 
enrollment will also increase employee participation.  
 
1 The first iteration of the War Labor Board was during World War One. It was established to prevent labor disputes from hurting production for the war effort. It 
lasted from 1918 to 1919. The second iteration was during World War Two and served the same purpose as its predecessor. It lasted from 1942 to 1945. 
https://www.history.com/this-day-in-history/roosevelt-recreates-the-national-war-labor-board  
2 The NCS provides comprehensive information on employer-provided health insurance and retirement benefits, including employer and employee costs, the 
extent of worker participation, and detailed provisions of the benefit plans. To the extent that employers contribute to any of these accounts, the cost is 
included in estimates of employer health insurance costs, including estimates of the quarterly change in those costs that is part of the Employment Cost 
Index (ECI). In addition, the NCS collects information on benefit plans through the employee benefits portion of the survey from which estimates for 
Employee Benefits in the United States are released. 
3 George Stelluto and Deborah Klein, “Compensation trends into the 21st century,” Monthly Labor Review (U.S. Bureau of Labor Statistics, February 1990), 
https://www.bls.gov/opub/mlr/1990/02/art5full.pdf. 
4 Employment Cost Index for Health Benefits, March 1982 through September 2018, https://www.bls.gov/web/eci/echealth.pdf. 
                                                     
 
 
                                                                                                                                                                           
5 This is the CPI-U, not the CPI-W or another version. 
6 Bureau of Labor Statistics, Spotlight on Statistics, Health Care, November 2009, https://www.bls.gov/spotlight/2009/health_care. 
7 “Retirement costs for defined benefit plans higher than for defined contribution plans,” Beyond the Numbers: Pay and Benefits (U.S. Bureau of Labor Statistics, 
December 2012), www.bls.gov/opub/btn/volume-1/pdf/retirement-costs-for-defined-benefit-plans-higher-than-for-
defined-contribution-plans.pdf. 
8 Ibid. 
9 The difference in the rate of participation between union and nonunion workers in plans that allowed a post-tax contribution was not significant. 


Compensation trends into the 21st century

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