879 I0 12 Page Ii 413 I. We need to understand the List relationship of Questions between private pensions, Social 14 EBRI Number security and individual effort plans such as IRAs. We need to understand L _ • higher Imposing thana value-added the cost oforprnation ovidingal sales benefitstax.to some individuals and 7. Endnotes What 3)now Employer dis effecct retion offering would acontributions ry the benefits benefits varioustwould hfor at taxprhealth refor_ ocut vide them re orinsurance tiremen taxback, simplification t in while are come independent as those aplans stream without such of of Page I6. 0. what Whi Are •chcould Increased happens the income existin5 havetogroups savin_s: this one rules ofeffect, and these concerninK Pensions what when depending kind a chan_e both emplo of on yee employees increase is howbenefits made it in was benefit and one suffi designed, of reallocate cient from the others. to different andensure total some 4. 2. If Whatcertain is thecompensation relationship isbetween not taxed, private does health Congressplans haveandtoMedicare? increase the If much lower for others. as the flat tax or modified flat tax or the value added tax have on Number employee paymen employers ts earnings. and for provided whichAs ta the xes a benefits result, are deferred the on a value taxable until benefits ofbasis, employer-pro a orre employees received vided forms that versions benefits savings. of allemployee employees ofwould Ifthe pension benefits? consumption probably benefit contributions fairly not tax would institute fromwere the provide received taxthem. incentives? for as this. Thecash onlyincome, difference total tax private rate health on taxable planscompensation? are taxed toWhohelp benefits financefromMedicare that shifting now, will of tax it burdens? e•mplo •Soci yee coverage IncludinK (in al cluding benefits? Securit isbenefit yemployer ,a empl larger ocontributions yer-sponsored contribu share tions of total in pensi to the odefined ns compensation en_loyee's and benefit Individu atadjusted apension llower Retiremen income Kross plans t eventuall between ypurchased result the two in these options 8rearer benefits demands wouldonbetheir oninthethe own? Medicare tax rates system theyinwould the future? impose. Numerous saving researchwould projects decrease. sponsoredTheby drop, EBRI deal moreover, with these wouldissues be relatively in greater income: If employermostcontributions plans do not for determine benefitsthewere costs included of employee in thebenefits tax base, on • Benefits levels and toare and defin now the ed provided added contributax tacross ionpayment plthe ans income whi of chlow-income require distribution. pworkers ayment Inin would medium the be form anda I •Accounts The Faced If I. andata Wewith excise (IRAs) need presented such totax areunderstand a complementary, carried provision, in thislower thetestimony employers rel working rates ationship than provides who together between the now corporate aoffer toclear private assure benefits yes orretiremen pensions, business to would this t detail. greater Examplesamong are provided lower- and below. moderate-income employees. While nonpension the they of an basis might annui oftbey); the trecharacteristics ated in the sameof wa the y th individual at the Intern foralwhomRevenue protection Code 13• Thelarger 12average . How share will taxpaof yer tax their laws demanding that incomeencourage taxthan refor_n atemployers be higher cause income ofto aprovide perlevels. ceptionemployee that EBRI • large Empl incomes. probably question. taxes oyerSocial establishments, the sThey pons cutfirm oSecurit are rethem d might not yheback aperfect lth and coverage be and pindividual rpaying, ograms substi those fortutes then pmajor rwho effort ovide in the do employee terms risk plans not incentives of protection would such benefits benefit as probably to IRAs. deli elimin such to very, most anot te We as • Iffinancial certain compensation saving is isconcentrated not taxed at among all likerelatively tax exempthigh-income insurance now is being treats provided. employer-paidThese lipricing fe insuranstructures ce premiumsare for reason cover able age from in the workers benefits tabulations taxbenefits and system would their ofaffect isnot data dependents. unfbe air produced compensation asdoes strong. not Research by the see planninK? Congressional baindicates sic employee that Budget benef taxation itsOffice as of a(CBO) these tax butinstitute change need to in them. understand one would Some employers effect what happens public who to pressures offer one of benefits these for, when support mighta change eliminate for, and is eFor costs retirement, individuals, background or on health, a deferred pensions on flexible lifebare asis and distributed like benefits disability retirement broadly plans is nearly and and among savings universal. their incomeprogr relevance groups. ams,Employee then to confidence ex employer's cessmade ofin in $viewpoint 50 the one ,000. others. of the These given others. premiums current tax are treatment, currently since includedthe in total the cost tax abuse. 4) benefits indicate discreRtather, ion are that arynow both under benefi a employers mainstay the ts Administration's that aof nd insure employees the middle-income theproposal employ see these eeto aworker's cap gbenefits ainsthe t amount fin economic asancial part of II. Are programs them theorexistinK might continuelead tax to in offer tocentives a them reduction with for benefits full in coverage. employee such pa asyThis ment. healthin care, turn could life changing to raise employee a given needs,amount see Dallas of revenue L. Salisbury, tax rates ed., wouldAmerica have toinbeTransition: higher i__[f health bof arisks se.insuring The and insurance are costthe tax ofpremiums employer's exempt life insuran that (including cework an vemployee aries force employer acccan ord isicontributions ng receive not toaffected the tax-free, indiv to iby health, duathose l'sthe 13 of • A13the value-added . Will sociatax l or contra incnational entives ct thatsales for defines empl tax: oyer-provided how instituting individuals employe a value-added eprovide benefits for tax behavioral produce insurance, security, significant building change day care, is savings pressure noteducational involved. as well for asa This providing assistance, government is the hazard program greatest and protection. cafeteria toproblem complement plans with Implications • Pensions for also Employee changeBenefits the distribution (Washington, ofD.C.: savingEBRI, among1982); investment Issue themselves allocation with age. life,the ,For andlowest their example, dis ofability fincomes these amiat lies, insuran agecosts would thirt andcepay ythe ,plans); among irmore thefutcthe uost than re. of members six This providing times social ofaslife much the contrinsuran atax ct covered as cand e a • SocialaffeSe ctcurit potential y provides employees' a floorchoice of prote of cemplo tionyment? on a redistributional 2 effective present taxOthers would 2.expenditure What not health might in is encouraKin have forego estim the programs the ates, relationship Kimproving same employers for they effect the atheir ssume to between poor as provide benefit ano(Medic tax private change these alevied id) packin benefits ahealth ges, and behavior specifically the while to plans aelderly when bro still and adona Brief "Flexible vehicles. Compensation Nonpension and saving Publicconsists Policy,"primarily no. 24; of and liquid Chapter saving XXII, popul percent worthation. anofindividu income They al'sas arethose annu irrelevant alwith salaincomes ryto is the1above 7employee percent $50,000. who as large cares as only it about is at related basis, tawith x benefits lower in earners cludes recei the mvaing jorityproportion of theall U.S. y gre labor aterforbenefits ce. The . cross (Medicare). others benefits. deposits section Medicare? might and Any Employers of investments employees tax Ifinstitute private levied alsoatin increasingly athealth aordifferent owner-occupied lowerincrease plans total are stages are cost providing employee homes taxed of thanproduction orif to heother acontributions, the lth helpGovernment insurance would consumer finance be change • Employer in the pensions: tax lawOf takes all full-time place. On employees the other in medium hand, if and talarge xing "Flexible Compensation Plans" in Fundamentals of Employee Benefit Programs Answers to Questions Asked by Congressman Pickle athe ge tot forty-five, al amount whof ileinsurance at age sixt provided, y this and costnotis about nearlyhowfour the times cost of as distribution 5)Many discretionary of those of benefits who benefit-related rely that most provide heavily tax for on benefthe Social its deferral among Securitof yincsome do alary notgroups unhave til provided otherwise for deductibles, durables. neutral establishments, retirees Medicare the non-taxed between Pension benefit toor now, supplement wages cop 82compensation--in will funds, adirectly, yments percent anditMedicare. benefits in eventually where are contrast, if employers covered appropriate. as this Were result aare case form these by provided invested in exempt ofa Kreater programs compensation, Employers pension benefits--leads in thesecurities demands benefits eliminated plan. are assuming already onSmall on that the to it a (Washington, D.C.: EBRI, 1983). large. this insurance is billed to the employer. reflects could The termin flatter increase ation the distr rate oflong-term employment, ibution structurecosts ofgener ofcover sof oame lly ageMedicare maj paoayrndbenefits tax padue rtireform cipto aas tion. aapropo lump reduction sals In sum,w 1981, ould and in taxable larger high working that firms,Medicare enough government both basis, to forwere reduce in or numerous system comes subject employees programs, their tin o aeconomic to the llow benefit purchased then the future? savings, tax, tax costs; reasons, these and rates andincluding thus benefits might their dowould not work inon benefits not fsponsor ais their ct change such be own? in lower plans themployer the at th they tax aas n finance productive capacity and employment. Pension funds have grown RegardinK Employee Benefits and the Tax Code wellness. exacerbate this regressively. Under current-law rates, the employees are and for employee unlikely whicearning h taxes preferences. tobetween are have deferred employer $15,000 until and sponsored $benefits 50,000 retirement reacre eivedreceived 71.8 plans. per (in cent cluding Social of they base to uniformly. would bewould theotherwise cle single In arly1981 accelerate be largest were the all supplier President's this compensation process of investment Commission but taxed. at a social funds on Pension to cost. financial Policy eFor further analysis of the tax treatment issues, see Sophie M. To avoid the inequities that would arise if all individuals were taxed allSecurity If progressivity contributions heemployer alth-relis ated contributions a of pto aythe tasome xas tax preferen you profit schedule for goces, program. benefits sharing 64.5 offsets were pl Research per ans, cthe ent taxed to effect ofindicates money toallthe onpensi pur tax employee, cthat ohase n-rel liability ait ted plans has the 2 • The 3. first What half are the of the appropriate question is employee easy tobenefits answer: that benefits should are en_oy being Korczyk, markets. concluded RetirementAt thataSecurity this time when could andunmet only Tax capital bePolicy changed financing (Washington, by mandating needs D.C.: are plansemerging or EBRI, by Submitted by the entire made onandanEavailable SOPs); apricing verage on cand osta bro cost ofadinsuran allocation crossce,section Trestructure asury basis.regul of The ations benefit secondpres plans half cribeofcould the the taxno ofpreferen effect, the declining ces,or a anegative ndshare 67.5 of percent effec health t, on ofinsurance aggreg all insur ate ain nncae-rel tion compensation aated l savings preferen .at higher ces. 8. • • Were Proposals Should The offering tagreatest favorable xtherafor tax tax tes impact law credits. higher major tax encouraKe of treatment? tax because As proposals reform, firms employers of grow, the What totherefore, elimin to exclusion however, level provide ate of employer need or they employee tdeferral axdo toexempt deductions add benefits; be retirement ofcarefully or tax tax for and on forthcoming). throughout See the alsoeconomy, Issue Brief the fact "Pension-Related that pension funds Tax Benefits," provide long-term no. 25 aincome mount levels. of premiums to be recognized as income for individuals on the have to be revised to allocate contributions appropriately among Thiquestion s group deferred pa gets ys 51 benefits more percent complic is ofated. tot acceptable al feder And al itintaxes. isliKht important By of compathe rison, thatFederal sound this if scrutinized. benefits capital so, which gives would benefits Tothem the probably andegree or important services betheonrole full should those in taxation economic be employees encouraged, of policy. these who and are progr what not ams type now as (December benefits, programs. 1983) however, and Among Issue aemployees 1982 BriefTreasury in "Employee all Department estaBenefits blishments anaand lysis who the were undert 1985 covered aken Reagfor aby n Employee Benefit Research Institute incindividuals. bome asis Government's group of agerece While (in ivrevenue ed the five- 64.2 average yneeds? ear perbr cent price ackets) of of and providing tax cobenefits verageemployee levels. related benefits The to 6) the and benefits covered. dis Joint level cretionary Economic ofbeMost taxincorpor benefits incentive employees Committee ated th isainto tindicates without appropriate? provide this benefit that for answerthe the as coverage deferr burden wellalwould as tend of cost. salar fato lly across be until Note:in •income pensions Employer-sponsored rests in 1983, on the nearly plaassumption ns pr 28ovide million another that(orthey 59.0 formwill percent) of "for continue ced" earned savings tolessexist, th than at Budget," no. 27 (February 1984). Treasury tables use blended actuarial assumptions for men and women homeownersh In to represents $20, speshort, 00 vcaial 0rious . ip. needs whatever employees a tier Emplo arise yee the of may (lo income criterion benef abe ns itsuniform, above andare used hardship), less Social for theofdetermining underlying Security. a or luxury untilcost th the Among atermina n cost of owning employers tbenefits ion of yeach our of •research theemployee smaller Increased income firms indicates benefits spectrum retirement and at con th analower the tincome: accommod for same income ate millions rel The alevels. tive different availability of basis Asworkers, workers small if benefits ofand uniquely athey new pension were firms willand valued often grow not. can September 13, 1984 own home. baemployment, sed on the gener proportions ally pay of benefits men andaswomen a lumpinsum, the and groupforofwhiemployees ch taxes with differs and employee's become morewidely than cost profitable, of according 250benefits, employees theytoare ifthe these it more employee's targeted programs likely those toare ageincur individuals almost under the universal. all financial likely major 4 •Further, asaccommodate The 4. theyUnited Ifare taxation certain today. States different could compensation has It is alw ge lead oimport gr ays aphic tohad antis an asections unintended not tocommitment note, taxed, of however, age the to doesdiscrimination economic country; Congress that the security regressive valuation have effect for to means the difference between subsistence and the ability to maintain eFor discussion of the interrelationship of programs see Sylvester J. with coverage over $50,000 in value. taare xation deferred would until result benefits from theare taxation received of benefits (includingwhere contribu benefit tions cost to benefits. Among Pensions to havesmaller the redistribute Benefits highest employers for incidence wealth the younger y to are offavor not. employees claims, those Foritare aat would significant the lessalso lower costly target end portion because ofthose the of of ifpre-retirement workers commitment he health alth increase and insurance insurance involved retirees. the living tax would were inrate standards establishing Social given likely on taxable Security an change in income retirement. employee compensation? ifwith value taxed. benefit itsequal Recent The income, Who plans. effect toEBRI benefits the health Removing research of benefit from this and Schieber, Social Security: Perspectives on PreservinK the System (Washington, these some profit employees sharinggenerally plans, thrif havet-savings lower pl health ans, andinsurance salary redu claims, ction • One provided, most disability income of the likely scale which mostcomponents to would who important need doincrease not insurance. combines consequences tend dramatically towith Since save of workers tathose much with x reform age. out most compensation propos oflikely current als to th laws aincome. tbecome seek and D.C.: would EBRI, projects the the is the fpopulation tax that a1982). ll same most that deductions shiftinK across heavily over these ofthe the for advance tax onnext income employee burdens? olderfunded forty workers stream benefits years programs at (health, real allwould represent retirement income etc.); probably levels. their coverage incomes make only Thisthis will gaps real is commitment disability Toplans); achieve uneconomical. raa ntes, equitaand ble mort distribution ality rates. of tax The ladjustments iability, a th scahedule t wouldlike be to savings. sick, restrucdisabled, ture As theaortax result,, die system would research face for the the indicates ahighest verage taxpayer taxthat liability, each would dollar ta bexing to more would According unemployment than be creto double. ated compensation recent if the TheEBRI employer average laws supported aschose annual an exresearch, pression toretirement drop programs ofaccumulated public income whencommitment. for taxed pension those or because the true value of health insurance increases significantly as an charequired th nge at the governing would tax trevary the atmenttacross ax of treatment embenefits. ployer ofcontributions life insurancefor would employee probably benefits. have contributed employer contributions to a pensionforincreases benefits aggregate would impose national tax savings liability by at in 3. 4What individu also benefits These 5. are aHow the lif social should appropri constitute ages, employees programs awe ate s evidenced deal the chose employee work major with to with bybenefits tax-deferred form not employer-sponsored expenditure of purchase financial thatcompensation should levels coversavings age. enjoy programs under as for favorable Finally, theopposed to more Medicare protect than all tto ax reaching age sixty-five in the 1980s is projected to be $13,376 per °Alternative tax systems would require detailed judgments about the least 35 cents. 7)inverse todiscretion be devproportion eloped ary "reimbursement fortoall ability employee to account" pay. benefits. benefitGiven programs the Supreme that have Court's been treatment treatment? • program. Capping available half workers of tax-exempt vof arious aemployee all What gainst research persons sources level compens significant benefits indicates with aation? of nd uses tax as pension hethat aalth of exempt share income. the coverage. and present of or economic total Both taxMore system compensation: would deferred risks. than is also The 40 the benefits cre percent government most ate anotcost some her is of household in 1983 dollars. It is expected to increase to $26,802 for • Fordelegally ci workers sion ina willowed th the Ar emplo izona ysin ee cev.benefits Norris 1978 ca whi there se, ch su would cahllow tables be emplo many would yees implement probabl toaytion have not acceptable Pensions: has established in lisht actuarial of programs themethods Federal likeused Government's Medicaid in defined-benefit to take revenue careneeds? pension of thoseplans without do effective alternativeandthequitable at has received method avail someable attento tion deliver in tathe x polic formy and debat level es, formidable the those implementation labor retiring force between reported and transition 2010 no savings andproblems. 2019. incomeAverage These in 1983. problems employer This and pension group's issues not bereimbursement differenti generallyatedacallocate counts--funded by sex. contributions by Suchthe taemployer bles or projected could, or through however, benefitssalary to be and • Another of the IRAs tr benefits ans are employer ition potential a vehicle nowissues protection, being effect for inprovided. voluntary maof jorand taxing taxit savings. refor_ employee hasn. provided They These benefits are could tax used to be the incentives byfor_nid 17 individual million able,to 5 though average 6. Which not income income necessarily was $9,651, _roups inand just the what under contex kind half t of the of employees average major taincome xbenefit reform, of those from is 5. are Ho treated w benefits should in wedetail will deal increase with elsewhere. tax-deferred from For $5,315 a compe discussion for nsatiothose n retiring as of o_employer p_posedin tothe pensions tax-1980s exempt in to andindividuals, differenti redu even ction--to predi atedcting determining by payage, them expenses family involves themthst instead atatus, some fall or un for into cert both. an aint "st employee yaFamil tutory about y cohort st benefit" athe tus rea based could ctions areas on be persons could beastocompared increaseto the over attractiveness 50 million withofpension flexiblecoverage. compensation Over 13 or compensation? • Employee est encourage ablishing different benefits employer a forms limit should provision ofonenjoy employee the for favorable share benefits? the orest f ttotal axoftreatment the compens population. ation if they thaprovide t can bea $12,417 reportingforsome thoseasset retiring income. between Almost 2010 half and 2019. of theThegroup proportion reporting of basic tax reform, see Sophie Korczyk, Retirement Securit 7 and Tax Policy ofused aggregate and employers, ato re tax predi forecasts emplo cexemp t yees, theaof lth (in insurers that cluding insuran cohort's ahe cnd ealth other clfuture aca ims re providers reimbursement, under demographic of plans benefits. and that child economic offer Th caire s provided million cafeteriaIRAin plans. holders the form Under also of have flexible tapension x-favored compensation coverage. employee plans, benefits. employees Benefits can 12. How benefit little will th or tax atnolaws the savings that government income encouraKewere would employers covered otherwise to by provide anbeemployer required employee pension. bybenefits public Not (Washington, new retiree D.C.: EBRI, households forthcoming) receivingandpension "Basic income Tax Reform: will grow Implica from tions37 maternity or dependents' benefits. uncexperience. ertainty reimbursement, arises If efrom defined-benefit tc.),thewith fact a thfurther atpension the aan vaacosts ilability lytic were break ofallocated tbetween ax incentives those among 7 • provided The elect 7. What tax various in effect incentive exclevels esswould ofapproach oftbe his coverage various amount allows under tax would programs reform the be major sub orject tottypes axbe tosimplification pdesigned aof yroll employee tax, to • affect All sentiment percent allforms retirement compensation in of to the benefits provide; 1980s benefits planning? should to if 71 exhibit itpercent beis evaluated provided thebysame 2019. against more incomecost distribution their effectively ability patterns, to bymeet the for Employee Benefits," EBRI Issue Brief no. 28, March 1984. For a forbenefit individuals, whiemplo ch ayll ee plans. ow salary benefits it An would employee redubecome hcation s influen choosing aclear nd those cedthat a which how less-generous financing plans don't; aaregiven health proviretirement ded insurance and • There employer accommodate incomearetthan ax, alsoor very itdifferen both. could different Under ces be by in altern workforces, the what atigovernment; vthese e proposals, geographic programs if the itprconditions, ocap serves vide,could or a human cover must and however. plans In suchparticular, as the flat statutory tax or provisions modified flat aimedtaxatorencouraging the value wide-rapolicy nging dis goals. cussionTaxofexpendit theoreti urecal numbers and prafor cticalall issues programsin should basic ta bex designed. benefit Effects requires ofFortaxin_ example abenefits: ,lowerbeca contribution usethe employee effectsforof benef a tax younger its ing abenef reemployee ipurchased ts would thanon vafor rya •provide, Research cplan, employee ontribufor tunder ions andpreferences, example, experience cfor urrent acan ll lbenefi a"spend" w. show while tThese s, thatthe still oreconomic differen employer's pensions, carrying ces security wcost aelfare ffeout ctsavings benefits the benefits, thedegree onwill feder added aand be to l resources individual added objective tax provision havethon atfor employee is retirement to the benefits? advantage differ ofconsiderably. the government While and can 59 reform,considered Tax see Dpayments allasinL.context by Salisbur retirees ofy, theed., will warnings Whyreflect Taxcontained Employee this income in Benefits? the growth. budget, (Washington, however, Pension among benefits and would depend on whether or not individuals chose to group 8) discretion basis, aryemplo benefits yers and thatemplo help yeesthe ca emplo n y benef ee imeet t from special economies needs and of whiso- provided one life chcalled employer closer insurance, more "fringe" to sponsored readily retirement benefits vacation inplthe anscaould presence ge. anddays, aIRAs ll Thebe of"compliment" contribution or ca tax ppedincentives. other separatel Sofor cbenefits. iya.l The the Security presence younger All in D.C.: and most EBpercent government's RI, tax-deferrals effectively 1984). of pension social should be participants achieved support be caref agenda. through ullyearnconsidered Unless the less employer; than the in nation $20,000, terms ifdecides of it46.5 the serves to percent amount step an beneficiaries retiring in the 1980s will pay an average of $15,808 in continue their coverage. If pension accruals were taxed on a current employee are tax can exempt accrue (including interest employer over a longer contributions period of to time, child while care and the steconomic cerms ale. employees--except taxes backoffrom Therefore, (1983 retirement advantage itsdollars) commitment ain for to cdollar omethose on the pro totheir spent vision. who government economic chronically on benefits employee security, thaover t guessed benefits can tax thebe incenti wrong course byachieved vaabout es n of emplo will their their ymost erbe 12 of of 8. these individual Shouldincentives, theretirement tax along law account encourage with qualification (IRA) employers holders requirements, to and provide 34.8 percent employee assuresof of tax savings eventually repaid to the government: over 80 percent in buybsame saleg sis, more albenefit plans); sath ving an would increment and would thealmos sfor ame t an dollar certolder ainlyspent employee decby line,an has ind and ivito duwould al. be financed de Incline the need those essential participating for to health benefit insurance in Section provision. or401(k) other Theplatestimony ns benefits--would fell into setsthis out segregate income nine nomin effe provision Succ ativel lh abenefits; ndollar yappro through aac cross terms h and could theand the ifermaplo ise so, over income yer; its which 70ifown percent spectrum. itbenefits seac thieves of in problems. reor aalItsodollar services ciencourages al For obterms. jeexample, cshould tive total This sucbe an h eln retirement. smaller plans, Pension the beneficiaries cost of providing retiring health between insurance 2010 and 2019, for the in primarily disproportionout atelyof employer among those contributions. at lower income levels who do not tend a•as bsen group. compens themselves So categories callow ciealai tion Se ng of Section curity women into that tax planning. onl 401(k) plans now to iyncentives pmore ays receive plans according benefits readily in enfcaour vor particular as ato enter a ging ble a stre thetax the aemplo mfollow expected workfor of treatment yermonthly acedifferent pvalue rovabenefi ithat nd sion, of ctan s. can income their most the be means employer contrast, th encouraged, at with long-term will apaymand atan ture, axwhat average subsidies long- type tof enure $44,672 are and work much level inforce smaller taxes of could tax (1983 than incentive bethe dollars) putcurrent at is ona marginal employee is based on the average costs of insuring the insured to save out of current income. evaluated. 9) discretionary benefits that have traditionally been called fringes admclaims. inistrative While structhis tures is thathe t mafundamental ke group purprinciple chases cost-effe behindctiveflexible may year effe pension cdistribution ompetitive ctively budget appropriate? benefits number bedis from apdv rovided during implies anboth tage their IR for cthrough Aosmpatax-deferred red and retirement. employer-sponsored with the aemplo n benefits. employer yer; if with plans. ita younger allows More wthan U.S. ork population of that community. In larger plans, the cost of insuring the never Pension have costs been developed. in a defined-benefit plan may therefore be ten times as • compensation for Emplo and ce,yaer reeven in sponsored tended plans, if the toplans many meet benefits emplo are employers yof erintwo needs sponsoring thetypes and two a(I) refirms these tax those exempt were plans that(in identic now only cluding price apay l. 13. Will emplo half yers taxof to incentives Section more effe 401(k) cti for velyplan employer-provided compparticipants ete inte_ationemployee aearn lly; between etc benefits . $20,000affect and marginal employee is based on the average cost of insuring the population the Toemployer avoid high-cost the provision insurance added of taxoptions pur liacbility, haseat dis less mcaounts, nythanlow- the jobavalue ndsite moder of acte-in the afeterias, cclaims ome 12 high 9. What for an conditions employee oratrestrictions age sixty as areatappropriate age thirty.on Attributing tax incentives an 9. potential What • Retirees Estimates benefits $Furthermore, 50,000, conditions employees' not as assume compared aaonly or cap stream norestrictions choice could receive other with of amonthly of changes ctunder larger employment? as are a benefits--most in target 50 retirement appropriate thepercent tax thatlafirms incomes ws on defined for andwith tax estim both asbenefit incentives less-gener aatesresult IRAsassume plans ous and of to represented by that employer's work force. While these two methods would be individuals would choose to do without health and other types of • Altern aexpected average employer-sponsored nd speci some ative al pension bonuses under defined treathem tments acontribution nd cplans. ontribution to awamaintain for rds, employee vanto plapools, ans each reasonable benefits succemployee hlubs, as risk TIAA-CREF--and that andwould pool pahave rking). of create been participants (2) proposed serious those • encouraKe Different benefit to encourage employers pl employee ans would employers tobenefits provide feel toemployee co test provide mpelled vabenefits? ry emplo todifferently yeemeet benefits? to maintain against their these no employer change pensions, in taxpayerbut beh their avior benefits if the law are more is changed--even secure due to if this legally is likely to yield different insurance costs for any given employee, under either include: insurance. Research conducted by the Employee Benefit Research under inequities. each option. Older employees If employees wouldwere be undercredited, being taxed on while the value younger of •criteria. The that the only answer makeprovision For one toanthis time analysis changed. question "lump-sum" of such is payes; yaments question the ateffect change benefits onofbehavior should employment beincreases clearly or at method the mandated competiti cost vof eadvance insuring positions. funding. that The employee This effor security tdoes s ofnot is sucrepresent all h employers the more the cost timportant o cat ofchthat up as Institute (EBRI) and others indicates that income determines whether • Only employees employer retirement after contributions, the would agequestion and be thus overcredited. is however, mayanswered or maysuch To not regarding subsidies the produce extent whi retirement would chthat ofprobably older these income--mos employees benefits have tto 13 differentiated • As as could I0. workers aAre provider offset the grow and existin_ the and older. caneffe encourager berules cts classified on concerninK employers of benefits into employee atwhose least and benefits benefits nine economic categories: sufficient ex security ceeded tthe to he employee's • debates Health expected insurance: overclaims. the fiscal Of all stability full-time ofemployees the Social in medium Securityand system large meet or the not criteria people wiset thoutabove employer-provided for justification _ealth of favorable coverage pur taxchatreatment se such earn •defined stop, Including more since contribution andbenefit they are would taxed plans. contributions mean at a that higherlow-risk inrate thethan emplo employees younger yee's would employees, adjusted be paying gross this cgovernment ap. ensure Such that takes a system allsteps employees could to benefit also assurebefairly that difficult from promised thetotaxbenefits implement incentives? are for • Economists continue. establishments, refer Socialvirtually toSecurity this all asbenefits "pare artialcovered andequilibrium" employer by health pension analysis. and benefits by This life inequity would be compounded. cancoverage theithe ncome; tax revenue bill themselves. level for higher-risk issue If emplo be appro yers persons. ached. did not If Allprovide all available persons health eviden chose cover ce,plans age, for I)non-profit delivered, legally required or thatpubli all benefits c-se workers ctor (including hemployers, ave access, employer neither and that contributions of expense which pay istobusiness defined. Social insurance plans. Among all employees with employer-provided health eFormeans complement a thorough that each most discussion other. behavioral As of pension health change insurance benefits is assumed increase, see aDeborah way Social so J. thatSecurity Chollet, rough most low-income workers would not purchase private health insurance. example, profit tindi axes. cates that the retirement, life, health and disability • priced IRAs coverage allow atinthe the 1982, money expected 57. to3 bemillion value withdrawof (nor at their 68.6 any per tclaims, ime cent) with earned the the payment risk-sharing less of thana 13 This Security, ii. Are suggests theMedicare, existin funding K unemployment tax requirements, incentivesinsur nondiscrimination forance benefits and workers' such provisions, as health compensation care, and benefits estimates become are possible. a smaller As ashare result,of these retirement estimatesincome. suffer If as public guides Employer-Provided Health Benefits: CoveraKe, Provisions, and Policy Issues Health insurance: employer contributions to finance health insurance benefits •Sinherent sm iinsurance); na Ecliminating ll e payment most now in pro people group employer vand ided insurance after covered far deduaex cge tions by cplans eed 59an the awould for nd employer benefit 1va/2lue be allow eliminated. health ofcontributions; the it pl to government an beareremoved members revenue as ofa percentage or dollar limits on employee benefits to control "tax policy $20,000, life continues and insurance, 28.6topercent encourage day care, earned increased education betweenalpension $20,000 assistance, coverage and $50,000. andandcafeteria benefit About (Washington, to policy. D.C.: Therefore, Employee Benefit they must Research be usedInstitute, with great1984), care.p. Analysis 94. An low- and middle-income families, employer-provided health benefits loss. lump-sum. In other words, policy change should more readily be based on the • are An excise similarly tax onbased benefits on: the rather totalthancost capping of insuring benefits as a particular a share of levels, cannot, subsidies plans for the oreffective example, tax pension expenditures". legitimately insystem encoura_in_ could Itusemust the employers reduce benumbers stressed, the toto provide pressure indicate however, these th that for at EBRI simulation 35 percent of of private all spending health insurance on healthsuggests care that thatdoes 56 not to 87 pass percent through of probably substantially raise rates of private health insurance •question Elimin employee • Capping atinK ofgroup. the whe emplo tshare heryer Underlying the ofdedu tot programs ctions al costs compens for are for ation employee meeting health thatinsur benefits: obcjaneacnce tives be provided cansthe ome be otwice Congress finthese the as compens benefits ation, to the aTreasury broad cross in 19 section 83 proposed of employees imposition at aoflower an extotal cise all covered 2)government ever-increasing the discretionary present workers programs system with benefits Social 1979 ofisSecurity benefit family that now are made income delivery benefits. fully through less taxable would than employer-sponsored change (primarily, $15,000ifwould taxpayment treatment notplans. have for elimination of favorable employee benefit tax provisions would produce supports, cchanged. over time form agenot ofnot throughout tworked); ax-favored on the revenue theemplo nonelderly yee issuebenef per-se. ipo ts; pulation. high dis taxtribution onatallage altax-f problems sixty avoredas would benefits, they not areacc what ompany atever age ma their thirty. jor tale xvel. reform Similarly, This proposals would the Fewer Sx ofcost than additional than 3 percent ifrevenue the of Government pension for the and fiscal provided health or insurance the SX benefit for participants the directly, use of earn such if purchased private health insurance, if an employer had not offered and more underlying than $50,000. cost of providing health insurance for women of tha avoid t would creating include a targe nonpension t benefitemployee level benefi for emplo ts yin ersthetotax reacbase h. An by contributed to their health insurance plan. programs as Social Security, health insurance for the unemployed, or Medicare. For •elimin Impos those aiting ng who anemployer excchose ise tax totaxcon ontinue dedu thections emplo their yer's for insuran benefit them. ce cThe cover ontributions; age, value-athe ddedimpa andtax ct excise child-bearing tax, howe agever, is higher would than have the thecost sameof effect insuringon young, benefits single as men. of a tIn ax short, on health the average insurance price premiums of most would employee be regressive. benefits is While much eliminating employer deductions for benefit contributions. Employers eFor a discussion of employer efforts to reduce health care costs, see "Controlling the Cost of Health Care: Recent Trends in Employee Health Plan Design," EBRI Issue Brief no. 23, October, 1983. 09/13/84 EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 ix _trcct. N\V .'4uitc mOO \\a_hington, DC 200 ',7 Yelcphone (202) 0_'4-0670