American Express National Survey Finds Workers Digging into Retirement Savings to Offset Health Care Cost Increases.

MINNEAPOLIS -- Overall savings, investing and 401(k) contributions hit harder in the wake of sustained double digit cost increases

American Express Retirement Services today released results from its second national survey measuring the impact of recent health care cost increases on American workers' financial health. The annual survey revealed an increasing level of concern among employees about rising health care costs.

Health care costs continue to increase in double digits--an average of 11.2 percent annually over the past five years.(a) These increases are receiving wider attention as health care costs are a central issue during this election year and workplace benefits enrollment season is in full swing. Awareness of their health care benefit cost increases was nearly universal among respondents (92 percent), with 70 percent of survey respondents reporting an increase in the share of expenses they pay for their health care benefits (nearly equal with 2003's findings).

The survey found a significant number of workers concerned about the financial effect of health care increases on their retirement future. The majority (74 percent) of workers responded they had at least some concern about how rising health care costs could affect their ability to fund their retirement and other financial goals, with 1 in 5 "very concerned."

Workers continue to make difficult choices with their overall benefits to address these added health care costs. Between 2003 and 2004, the survey results were fairly consistent in the actions that respondents contemplated taking in response to rising health care costs. Overall, reducing discretionary spending (59 percent in 2004 and 56 percent in 2003), and decreasing overall savings and investments, remained the most likely choices. However, a significantly larger percentage of respondents in 2004 also reported that they would now consider switching to a less expensive health care plan (37 percent in 2004 versus 29 percent in 2003).

"What we're seeing is employees weighing their long-term retirement security against the near-term cost increases for current healthcare coverage," said Kellie Richter, vice president, American Express Financial Education and Planning Services. "As the survey results show, this becomes a bit more difficult each year--with no relief in sight for American workers."

Of greatest concern for its impact on future financial standing, slightly more workers (40 percent in 2004 versus 38 percent in 2003) stated that they are planning to decrease the amount they allocate toward savings and investing overall.

Of those surveyed, 31 percent (up from 29 percent in 2003) said that a significant increase in their health care costs would make them consider reducing their regular retirement plan contributions, with 1 out of 4 stating that they definitely would cut back.

In such cases, 53 percent of workers would make a modest 1 to 2 percent reduction, while only 14 percent would cut back 3 to 4 percent. The number of those willing to make a 5 percent or more cutback reached 34 percent in 2004 (1 out of 3 people), up dramatically from 25 percent in 2003 and possibly showing a growing willingness on the part of some workers to dig deeper as they reshuffle their benefits dollars to make up the difference. (Reductions in contribution rate are shown as a percent of salary.)

Overall, health care expense increases were again shown to have a measurable affect on their level of financial stress, with half of those surveyed in 2004 indicating at least some or considerable increase in financial stress, identical to 2003.

In order to cope with the affects of these financial burdens, the survey found 65 percent of workers would be interested in attending a workplace financial seminar to help them understand and address rising healthcare costs, down slightly from 2003, but still a strong majority. Alternatively, the survey found an increasing number of people interested in one-on-one sessions with a financial advisor (nearly half of those surveyed), along with growing interest in telephone sessions with registered representatives and online assistance.

"There are no easy solutions for employees or employers, but there is reason for hope," said Richter. "Workers remain receptive to accepting help regarding their benefits and financial options, and it makes more sense than ever for employers to provide a program of financial education that includes personal components such as face-to-face or phone consultations to assist employees in weathering financial change both now and in the future."

New to the survey in 2004, when asked what most concerned them, affording health care today or health care in retirement, 75 percent of those surveyed said affording health care coverage during their retirement years. As the overall survey results demonstrate, helping workers achieve a secure retirement, including income for health care expenses, in the face of today's health care benefits challenges, is no easy task.

"Employers make an expensive investment in all of their employees' benefits. Financial education can help promote full involvement in and appreciation for those benefits," said Richter. "With the right help, workers can make better choices to cope with these changes. Without it, the data indicates a strong potential for lower benefits participation and lower savings rates, further straining employers and adding to the looming financial crisis of retirement and future health care needs."

About the Survey

American Express Retirement Services used the services of Synovate to conduct its Telenation Survey of nationally representative households receiving 972 qualified respondents. The analysis included only people who are employed full-time and receive their health care coverage from their employer. The American Express Global Marketplace Insights research group provided data analysis and a report of the findings.

About American Express Retirement Services

American Express Retirement Services, a service group of American Express Financial Advisors Inc., provides corporations, unions and municipalities, and their nearly 1 million workers nationwide with a complete package of financial education, recordkeeping, investments and trustee services for their qualified retirement plans. For more information on American Express Retirement Services, visit www.americanexpress.com/sponsors.

American Express Financial Advisors Inc. popularized early saving and investing programs for Americans more than 100 years ago, helping give rise to financial planning, mutual funds and retirement plans in the past century. Today, American Express continues its commitment to individuals and corporations with its Financial Education and Planning Services unit of American Express Retirement Services, which delivers workplace financial education programs to more than 2 million workers nationwide.

First use 10/04

Registered investments and financial planning services are offered through American Express Financial Advisors Inc., Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. Retirement plan and trust-related services are offered through American Express Trust Company.

(a) Source: 2000-2004 Kaiser/HRET Survey of Employer-Sponsored Health Benefits.