A report by the Bureau of Labor Statistics (BLS) finds a number of factors influencing the cost of providing those benefits beyond wages.
According to “Defined contribution retirement plans: Who has them and what do they cost?,” the BLS reports that in March 2016, the overall employer cost for providing defined contribution benefits was $0.70 per employee hour worked in private industry. However, the report also notes that employer costs per hour worked for DC plans vary significantly by some worker and establishment characteristics and by geographic areas.
Wage Weight
Of course, the report acknowledges that often the main factor determining the costs for the plans is the wage rate that an employer pays a worker for a particular job — in that the contribution that the employer makes to an employee’s account often is based on a percentage of the employee’s wages. For example, in March 2016, the average employer cost per hour worked for DC plans was $1.52 per hour worked for management professional and related workers — approximately 10 times more than the $0.15 per hour worked for service workers.
BLS notes that large establishments also pay a higher cost per hour worked for DC plans than do small establishments in part because large establishments often pay higher wage rates than small establishments. In March 2016, the average employer cost per hour worked for DC plans in establishments with 100 or more workers was $1.01 per hour worked, compared with $0.45 per hour worked in establishments with 1 to 99 workers.
Other Variables
Worker participation costs per hour worked also vary by worker and establishment characteristic and by geographic area, although the report explains that proportionally they do not vary as much as the overall employer costs per hour worked. When using the worker participation rate to calculate the employer costs only for those workers participating in DC plans, the difference in cost, or the cost ratio, between management, professional, and related workers, and service workers, is not as great because now the cost is averaged out across only those workers who are participating in a plan.
For example, for management, professional, and related workers, using the worker participation rate of 63% to calculate the worker participation cost shows that the employer cost is $2.41 per hour worked. On the other hand, for service workers, using the worker participation rate of 19% to calculate the worker participation cost shows that the cost is $0.79 per hour worked — an approximately threefold difference in the cost ratio compared to an approximately tenfold difference in the cost ratio seen in the overall employer cost per hour worked for these two groups of workers.
Participation Weights
Similarly, worker participation costs per hour worked for DC plans vary when comparing costs between large and small establishments. When factoring in that for establishments with 100 or more workers only 57% of workers participate in DC plans, and for establishments with 1 to 99 workers only 34% of workers participate in DC plans; the worker participation cost per hour worked for DC plans for establishments with 100 or more workers is $1.77 per hour worked, only 1.3 times more than the $1.32 per hour worked for establishments with 1 to 99 workers.
By geographic area, worker participation costs vary from $1.48 per hour in the Midwest census region to $1.75 per hour in the West census region.
According to “Defined contribution retirement plans: Who has them and what do they cost?,” the BLS reports that in March 2016, the overall employer cost for providing defined contribution benefits was $0.70 per employee hour worked in private industry. However, the report also notes that employer costs per hour worked for DC plans vary significantly by some worker and establishment characteristics and by geographic areas.
Wage Weight
Of course, the report acknowledges that often the main factor determining the costs for the plans is the wage rate that an employer pays a worker for a particular job — in that the contribution that the employer makes to an employee’s account often is based on a percentage of the employee’s wages. For example, in March 2016, the average employer cost per hour worked for DC plans was $1.52 per hour worked for management professional and related workers — approximately 10 times more than the $0.15 per hour worked for service workers.
BLS notes that large establishments also pay a higher cost per hour worked for DC plans than do small establishments in part because large establishments often pay higher wage rates than small establishments. In March 2016, the average employer cost per hour worked for DC plans in establishments with 100 or more workers was $1.01 per hour worked, compared with $0.45 per hour worked in establishments with 1 to 99 workers.
Other Variables
Worker participation costs per hour worked also vary by worker and establishment characteristic and by geographic area, although the report explains that proportionally they do not vary as much as the overall employer costs per hour worked. When using the worker participation rate to calculate the employer costs only for those workers participating in DC plans, the difference in cost, or the cost ratio, between management, professional, and related workers, and service workers, is not as great because now the cost is averaged out across only those workers who are participating in a plan.
For example, for management, professional, and related workers, using the worker participation rate of 63% to calculate the worker participation cost shows that the employer cost is $2.41 per hour worked. On the other hand, for service workers, using the worker participation rate of 19% to calculate the worker participation cost shows that the cost is $0.79 per hour worked — an approximately threefold difference in the cost ratio compared to an approximately tenfold difference in the cost ratio seen in the overall employer cost per hour worked for these two groups of workers.
Participation Weights
Similarly, worker participation costs per hour worked for DC plans vary when comparing costs between large and small establishments. When factoring in that for establishments with 100 or more workers only 57% of workers participate in DC plans, and for establishments with 1 to 99 workers only 34% of workers participate in DC plans; the worker participation cost per hour worked for DC plans for establishments with 100 or more workers is $1.77 per hour worked, only 1.3 times more than the $1.32 per hour worked for establishments with 1 to 99 workers.
By geographic area, worker participation costs vary from $1.48 per hour in the Midwest census region to $1.75 per hour in the West census region.
The BLS report derives employer costs per hour worked for wages and salaries and the employer costs per hour worked for DC plans from published statistical estimates from the National Compensation Survey. The BLS calculates worker participation costs by dividing the employer costs per hour for the benefit received by the participation rate of the benefit, which produces a derived number that represents the employer costs per hour worked for those workers participating in a plan.
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