Canadians look forward to retirement, but for many, it’s only at the back of their minds, something that will happen eventually and, increasingly, not at the magical age of 65.
Today’s employees often work long past the eligible age of retirement, creating new workforce dynamics that demands the attention — and often a new analysis — of employers and their group health-care providers. In 2016, according to a 2017 Statistics Canada study, those aged 55 and over accounted for 36 per cent of the working-age (aged 15 and over) population. By 2026, experts suggest, that proportion could reach 40 per cent.
In well-balanced, meaningful benefits programs, an organization’s commitment to provide retirement security for employees has been the long-accepted norm. But what about health-care security?
Read: What are employer’s options for reducing risk in retiree health plans?
Health-care expenses in retirement are often the proverbial elephant in the room — and the truth is, most employees don’t know how big the elephant is. But they’re starting to figure it out.
While employed, workers expect to have access to, and employer support for, health-care insurance. In some cases, they may take for granted that coverage will continue right through the retirement years. But in reality, it often doesn’t — and this realization can delay retirement.
The impact of delayed retirement is hard to ignore for companies seeking to manage their workforce demographics and control the associated high, end-of-career compensation costs and related benefits.
In July 2016, Aon conducted a survey of 170 of its employer clients, discussing the topic of delayed retirement. This survey asked Canadian organizations about their current benefits practices with respect to their employees who are over age 65. It showed some very interesting results. 
The survey also found there are steep challenges in meeting the unique benefits needs of older employee groups. These challenges are made more difficult by shrinking budgets, insurance limitations and concerns over possible age discrimination, noted the report.
Read: Age discrimination in benefits plans unconstitutional, tribunal finds
To mitigate these concerns, one option may be to consider retiree health benefits as part of the group benefits plan, especially when taking into consideration the increasing competition to attract skilled staff. The flip side, however, is that offering a traditional, defined health benefits plan may create a financial struggle within the organization.
The solution may lie somewhere in the middle.
Many employers have started migrating away from a traditional benefits plan designs in favour of a more flexible approach, in which the employer sets aside funds for employees, who then purchase a health benefits plan that meets their unique and individual needs.
However, incorporating this kind of structure is only one part of the puzzle. An equal, or perhaps more important, past is helping employees determine what those needs may be. For many workers, saving for retirement is the easy part — the more complex side of the equation comes in the planning, especially in relation to health care.
From a planning perspective, income security plus health-care security equals retirement readiness. But failing to properly account for routine health-care expenses and custodial care in retirement can leave an enormous gap in any financial plan. Not to mention it makes workers nervous about their futures.
Facing an aging workforce, unfunded benefits obligations and potentially complex accounting requirements, many plan sponsors are re-evaluating their existing retiree health-care plans, or creating new ones. It’s a valuable analysis to undertake.
Read: Shift towards DC approach to health benefits inevitable
A retiree health plan that looks more like a defined contribution plan can be designed to reward long-service employees and serve as a workforce management tool for recruiting, retaining and retiring employees in a timely fashion. Plan rules such as eligibility, contributions, investing and entitlement are still entirely up to the plan sponsor. But by adding a defined contribution approach, employers can help employees address their health-care security while managing the organization’s total compensation budget and addressing looming workforce management issues.
Employees who feel more confident about their retirement futures may retire at a normal retirement age rather than delay retirement to maintain coverage under their employer’s group health plans.
Brian Rennie is senior vice-president and national leader mid-market at Aon.