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Workers facing the thorny problems of healthcare and retirement

Are Americans best served by relying primarily on the private sector for health coverage and for benefits in their sunset years? Experts' opinions vary.

August 29, 2013|David Lazarus
  • Trader Joe's chief executive pledged to reduce workers’ healthcare costs 10% for the remainder of the year while the company determines its response to changes under the Affordable Care Act. Above, Gino Hasler Jr. helps create a dairy box sign at a Trader Joe's in Montrose.
Trader Joe's chief executive pledged to reduce workers’ healthcare… (Gary Friedman, Los Angeles…)

Like most employers, Trader Joe's is grappling with how to look after the well-being of its workers amid difficult financial circumstances.

In May, the head of the privately held Monrovia company, with stores nationwide, sent a confidential memo to employees notifying them of changes to their health coverage, retirement program and wages.

"In these increasingly complex times, it has become necessary to relook at our programs," wrote Dan Bane, the chief executive and chairman. "We do not do this review lightly."

He pledged to reduce workers' healthcare costs 10% for the remainder of the year while the company determines its response to changes under the Affordable Care Act.

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Bane said Trader Joe's would scale back its contribution to employees' retirement plans, though the company's contribution would remain generous by industry standards. He also set new limits on employee raises.

A Trader Joe's spokeswoman declined to comment on the memo, which was provided to me by a company employee.

As Labor Day approaches, it's worth noting that the challenges faced by Trader Joe's are shared by most U.S. businesses, large and small.

Meeting workers' present and future social-welfare needs has become a crucial and highly complex issue as healthcare costs continue to outpace inflation and secure retirements grow increasingly out of reach for many people.

These issues highlight the vulnerabilities of a system in which people's social safeguards are tied to their employment and workers are largely fending for themselves in financial markets.

Put succinctly: Are Americans best served by relying primarily on the private sector for health coverage and for benefits in their sunset years? Or would it make more sense to pool our collective risks and look to a greater role for public programs such as Social Security and state pension plans in providing safety nets?

"If you start with the premise that Trader Joe's doesn't want to be a bad guy but can't afford these benefits — and you see that being replicated over and over again with other companies — it necessitates looking at some non-private-sector responses," said Bob Bruno, a professor of labor and employment relations at the University of Illinois.

Not all economists would agree with that.

Michael Tanner, a senior fellow at the libertarian-leaning Cato Institute, told me the private sector can make a meaningful contribution to people's healthcare and retirement needs.

For example, he acknowledged that the employer-based healthcare system is inefficient and frequently inhumane. If you lose your job, your entire family can be denied affordable healthcare.

But Tanner wouldn't do away with private insurers. He'd expand on one of the core ideas of the Affordable Care Act and have all people buy their insurance through competitive exchanges.

"This would create a system in which everyone has personal and portable insurance," Tanner said.

Bruno countered that a Medicare-for-all insurance system would be more efficient and would likely do a better job of making sure everyone has access to coverage.

"Is that socialism? Yes," he said. "But it's socialism American style. Just like Social Security is socialism American style. Just like Medicare is socialism American style.

"No one should be crazy about this," Bruno said. "This isn't the Soviet Union. This isn't Maoism. We have powerful democratic provisions that prevent an authoritarian state. Those provisions should help us generate a system that's equitable to all people."

In speaking with various economists, I found it interesting that not one defended our current system of tying health coverage to one's job. Julie Zissimopoulos, a USC professor who focuses on the economics of aging, called the employer-based system a "historical accident."

Indeed, if it wasn't for wage restrictions placed on employers during World War II, prompting them to offer healthcare as a benefit to attract workers, we might never have gone down this road. Chances are, we'd have joined other developed nations in crafting national health-insurance plans.

Zissimopoulos proposed a hybrid of Tanner's and Bruno's ideas. She said the government should offer catastrophic insurance to all as a form of basic coverage and then allow people to buy supplemental coverage in the open market.

As for workers' retirement plans, this can be tricky — and expensive. Private-sector pensions proved too costly for most businesses. But the 401(k) plans that have replaced them have come up short in adequately meeting people's needs.

The average 401(k) balance was $80,600 as of the end of June, according to Fidelity Investments. That's not the most encouraging figure considering that Fidelity estimates the typical 65-year-old couple retiring today will spend about $220,000 on healthcare alone.

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