Post-retirement benefits at risk

Rising costs prompt more than half of Canadian companies to reduce health-care benefits
||Last Updated: 04/10/2006

The changing financial, demographic and economic landscape in Canada has caused many organizations to consider new cost-containment measures that will have a significant impact on the level of post-retirement health-care coverage employees receive.

According to a survey of 218 Canadian organizations by HR consultancy firm Hewitt Associates, 57 per cent of companies intend to reduce the level of post-retirement health-care benefits over the next three years. Four per cent of organizations surveyed intend to eliminate them entirely.

The survey found three primary reasons for reducing these benefits. Predictably, rising health-care costs were cited as a reason for reducing benefits by 95 per cent of organizations, while 67 per cent worried about accounting costs and 43 per cent worried about the increase in employees planning to retire in the next decade.

“Canadian organizations that currently offer retiree health-care benefits are in a difficult position right now,” said Hewitt senior benefits consultant Jason Kolysher. “Many are simply uncertain as to how to manage rising health-care costs while still providing the quality coverage needed to attract and retain key talent.”

Of the organizations planning to reduce retiree health-care benefits, 30 per cent intend to implement increased cost-sharing measures. Another 18 per cent of organizations plan to reduce the medical coverage available to retirees. Fourteen per cent intend to roll-out stricter eligibility requirements.

“Before making any changes, it is imperative that organizations first assess their current retiree health-care program, analyze the impact any strategy that supports their overall benefit objectives,” said Hewitt senior benefits consultant Tim Clarke.

“Companies need to consider the design, communication and administrative aspects of their plan to achieve the highest levels of cost savings, time efficiencies, employee satisfaction and return on investment."

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