Think It's Expensive Now? Wait Until You Retire

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Most credit union employees can expect difficulty maintaining their current lifestyle and closing gaps in health care when they retire, according to two analysts.

The reasons, said Mary McNeill, vice president, and Tom Eckert, senior VP, in CUNA Mutual's Employee Solutions Group, are in large part escalating health care costs and poor savings habits.

Speaking to CUNA's Future Forums, the duo noted that the benefits landscape has changed over the past 10 years as employers have moved from defined benefit to defined contribution savings programs. Similarly, a shift away from employer-sponsored retiree health care programs is compounding problems for employees seeking a comfortable retirement.

"We've known for quite some time that employees are not saving enough, despite having access to convenient, company-sponsored 401(k) programs," McNeill said. "Now employees face the proposition of also funding their retirement health care coverage."

McNeill and Eckert said that depending on how long the former credit union employee lives, that could cost them several hundred thousand more dollars than they anticipated."

Eckert told the meeting that one might think employees would jump at the opportunity to participate in tax-deferred savings programs featuring matching contributions from their employer, "Yet 52% of Americans have saved less than $25,000 for their retirement, and the average 401(k) balance for all participants is just $68,000."

Compounding employees' lack of savings is a declining number of employers offering retirement health benefits. They cited a recent CUNA survey showing 32% of credit unions with more than $500 million in assets still offer medical benefits to retirees. Most are through programs in which employers promised a specific level of coverage or cost.

Question For Employers

Maintaining this benefit level today is difficult as employers struggle with rising premiums and health-care costs, said the two CUNA Mutual execs, noting employers must ask themselves do they eliminate or scale back benefits and risk losing talented employees already strapped for savings, or do they keep their promise and face the challenges of escalating costs?

Eckert said some viable solutions exist to alleviate the savings and retiree health care dilemmas, including: Automatically enroll employees into the employer-sponsored 401(k) program; institute a provision that automatically raises employee contributions when they get a raise; offer the assistance of a financial manager to provide professional, personalized support and investment direction; offer investment options that adjust employees asset allocations as they near retirement.

McNeill said credit unions can also redesign their retiree health plans to provide access to an affordable, sustainable program while still providing meaningful value to employees. She suggested expanding eligibility by offering a prorated plan allowing shorter-term employees to earn a meaningful benefit; establish benefit maximums by designing plans with a "defined contribution" approach, with set dollar amounts based on eligibility criteria; earmark funds and apply an appropriate investment strategy to allow the earnings to offset year after year expenses. Review accumulated benefits to uncover additional funding opportunities.

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