June 2001
Re-examining Employee Benefits
by Fred McMahon
The system of family and fringe benefits offered by most employers was designed in a hugely different world, and it is far from clear that it fits the current reality.
That world was one of single-income families. The husband was the breadwinner. The wife stayed at home to look after the children. Of course, even back in the 1950s this picture hardly captured all of society, but it was that image that today's benefit packages were designed to meet.
How much society has changed was brought home to me a few years ago when I worked at the Bank of Canada. I discovered that up until the 1960s, male employees were required to obtain their supervisor's permission to marry. Female employees had to resign from the bank on marrying.
Today, the world is much different, but the structure of benefit packages has hardly changed. They are still basically designed for one-income families with children, though that characterizes only a few of today's families.
This article is meant merely to start a discussion on family benefits rather than come to any strong conclusion about them. It will, however, examine the question of whether benefits should be directed solely to families with dependents or, perhaps, just to families with dependent children.
It is important to note that no legislative requirements concerning benefit packages should be placed on private-sector employers and employees. They must be free to negotiate agreements that suit the best interests of both parties, rather than the best interests of some regulator whose agenda is divorced from the interests of either party. Nonetheless, a policy debate about issues surrounding benefits can provide useful information to employers and employees.
On the other hand, Canadians have the right to insist that government's own benefits policy should be informed by good policy since, in effect, taxpayers are the shareholders of government.
The biggest controversy about benefit packages today is whether they should be extended to gay couples. This was not a conceivable complication when these packages were first designed. Some employers meet the new challenge by extending packages to gay partners. Others refuse.
But, once benefit packages are made available to non-traditional families, the rethinking should go deeper. Benefit packages were originally meant to cover an employee's dependents. Both wife and children were assumed to be dependents.
Extending benefits to non-traditional families opens the question about other types of dependents. Two siblings, or just two friends, who have been living together for years or decades can, in almost every sense, be as close as people living in a physical relationship. Indeed, the relationship can be deeper emotionally. Should such couples be disqualified just because they don't sleep together? Or, put another way, should couples similar in every other way qualify simply because they do sleep together?
Perhaps the key criteria in judging whether benefits should be extended to an employee's partner should be one of dependence, not whether they are sleeping together. Thus, an employee might be able to obtain benefits for an aged parent who has been living in the same house for years.
On the other hand, perhaps childless, two-income couples should not be able to "top up" their benefits. Family benefits were never designed for situations in which two childless partners are both employed. This can often create special benefits for affluent, two-income, two-person families. Under many plans, both partners can partially claim against the other's benefits. So, if the deductible for a prescription is, say, 30 percent in one plan, the other partner's plan can be used to reduce the deductible to, say, 15 percent.
Of course, private sector employers should be able to negotiate any type of arrangement that suits their and their employees needs. However, as taxpayers, we can wonder if government plans should offer these sorts of benefits.
Alternatively, it could be argued that family benefits should only be extended to those families, traditional or not, that support children.
In many ways, this is most in line with the original intention of family benefits —to help families with children. These packages served a social function and, from the employer's point of view, helped attract employees. Young families could be overwhelmed by the medical and dental costs in their earliest, lowest income years. The family benefit package provided welcome succour during these financially fragile years of family-building. It was good for the employee and, because of that, good for the employer by cementing the relationship between worker and business.
Private sector employers will continue to seek relationships with their employees that work to both sides' best advantage. We may well start to see benefit arrangements begin to change to reflect new conditions.
Government, on the other hand, can often be swayed by power relationships, special interest groups, politicized union bargaining, and the often perverse incentive structure that faces bureaucrats and politicians. This can lead to agreements that obtain maximum benefits for neither government as employer, nor for its employees, but instead provide special benefits for various rent-seekers. This means the public should keep a close eye on government.
The goal of this article has been to provoke thought rather than reach any conclusions. Nonetheless, it may be time to put a closer focus on a program designed for a very different world from the one in which we live today.
Fred McMahon (fredm@fraserinstitute.ca) is Director of the Social Affairs Centre at The Fraser Institute. Formerly with the Atlantic Institute for Market Studies, his most recent book is Retreat from Growth: Atlantic Canada and the Negative Sum Economy.
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