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Amidst a struggling economy, public employees can be a public burden. A new Mackinac Center study finds when it comes to retirement plans, state and public school employees are offered benefits far more expensive than those offered to workers in the private sector.
The study, “Michigan’s Public-Employee Retirement Benefits: Benchmarking and Managing Benefits and Costs,” compares retirement plans for school and state employees to benefits offered by private-sector employers. Even recent changes to the state’s two largest employee pension programs have failed to bring public-employee benefits in line with those in the private sector.
In addition to burdening current taxpayers, the plans incur significant financial obligations that will cost billions of dollars in the future. Unfunded liabilities currently stand at $15.1 billion. In addition, the system pays for retiree health care, a benefit that cost the state and public school districts $1 billion last year alone.
Actuary Rick Dreyfuss,
an adjunct scholar with the Center, wrote the study, drawing on data from
consulting firm Aon Hewitt to compare Michigan’s pension plan benefits to 24
large state employers. None of the private employers offered the traditional
“defined benefit” pensions that new public school employees are still granted.
In addition, Dreyfuss found that only 12.5 percent of private employers
cover retiree medical expenses. Under the state’s systems, taxpayers pick up a
whopping 90 percent
of retiree health insurance premiums.
The study shows that government and school employees receive pensions three to five times more expensive than the private sector’s. This accounts for a large part of Michigan’s $5.7 billion gap between benefits to government employees and private-sector averages.
When the new leadership arrives in Lansing next year, they’ll be greeted by a budget that is projected to spend $1.6 billion more than revenues. Using the Mackinac Center’s new study to guide pension reform, the state can begin to address overspending issues. It can also bring government employee benefits in line with those of the people they’re supposed to be serving.
