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
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
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.