Public/private benefits

Responding to public outrage, a United States Senate panel voted in October to trim lawmakers, and their staffs, pension benefits by $9 billion over seven years. State and local officials could be pressured to follow suit.

“Our studies show that, since 1980, the average compensation for state and local government employees has increased at a much faster pace than employee compensation in the private sector,” says Kerry Jackson of the American Legislative Exchange Council in Washington, D.C.

Jackson says that for every dollar of employee compensation in the private sector between 1980 and 1991, state and local government employees gained $6.40. Indeed, articles this year in a number of financial magazines have criticized lavish state and local benefits. The council, a bipartisan group representing state legislatures, has called for large-scale cutbacks of such benefits.

It is true that state and local governments have not padded their benefits packages to the extent their federal counterparts have; federal compensation packages still are about three times greater than those of private sector workers, according to the National Taxpayers Union in Washington, D.C.

Citing the Bureau of Labor Statistics (BLS), the Washington-based Employee Benefit Research Institute reports that a worker making $45,000 annually who retires after 20 years will receive benefits equal to about 21 percent of his or her income — around $9,450. That increases to 30 percent, or $13,500, after 30 years.

By contrast, a public sector worker making the same income would collect about 33 percent, or $14,850, after 20 years and 50 percent after 30 years.

Additionally, the BLS indicates that private sector workers with defined contribution plans — those that do not promise a specific benefit but are, instead, based on upfront contributions — can expect their employers to fund 40 percent of those plans, while taxpayers — technically their employers — fund 100 percent of such plans for public sector workers.

Public pension plans have also been criticized for paying out a greater percentage of payroll for benefits than does the private sector; studies show that benefits in the public sector account for 12.4 percent of payroll while those in the private sector account for 8.9 percent.

But Paul Zorn, an analyst with the Public Pension Coordinating Council in Washington, D.C., which analyzes trends in retiree benefits at the state and local levels, says that information about public retirement plans is misunderstood.

Zorn says the variances over what public and private workers receive at retirement are mitigated because about 25 percent of state and local employees are not covered by Social Security, compared with almost full coverage in the private sector.

He does, however, admit that those not covered by Social Security have opted out of the system and do not pay anything toward it. Still, Zorn maintains that criticisms of public employer payrolls and funding levels are unfair because private sector workers receive higher current wages-74 percent of total compensation as opposed to 70 percent that public sector workers get. Thus, it evens out over time, he says.

Additionally, most public sector workers have no access to defined contribution plans, while about 36 percent of those in the private sector participate in such plans.

Much of the outcry has concerned salaries, not benefits packages, primarily because the latter are not well understood. And those packages do help the public sector attract top-rate personnel, something they would be unable to do otherwise.