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Comparing Employee Benefits

Just as there can be no simple comparisons between public and private sector wage rates, so too is it misleading to compare benefit packages offered by the respective sectors unless one takes into account many factors. The Bureau of Labor Statistics Employee Benefit Survey for 1993-94 compares the percent of full-time workers participating in selected employer-provided benefit
plans.8 In an effort to compare the private and public sectors equitably, only medium and large private employers are included and data for small private establishments is excluded. This is done to make like comparisons, since few governmental entities would be classified as small employers. State and local governments, as well as large private companies, benefit from economies of scale in risk pools and other criteria that affect rates and the costs of providing certain employee benefits. The following chart points out some of the differences in benefits provided to employees.

 

  Private-Medium & Large Establishments, 1993 State & Local Governments,1994 
 Medical care     82%  87%
 Life insurance   91%  87%
 Long-term disability   41%  30%
 Sick & accident ins   44%  21%
 Defined benefit pension   56%  91%
 Defined contribution pension   49%  9%

 

Public employees have historically received more comprehensive health care and pension benefits than their private sector counterparts. Beyond these two benefits, however, public sector employees actually lag the private sector. While both the private and public sectors provide life insurance for roughly the same percentage of employees, the coverage is not always comparable. For example, while private employers usually buy group life coverage that pays out a multiple of a deceased worker's salary, public employers are more likely to provide a policy that pays a small lump sum.9 Additionally, public employees have increasingly been moved into less costly HMOs and PPOs and are now required to pay for larger portions of their premiums. With these recent trends, public employees find themselves with benefits comparable to those offered in the private sector.

While the preponderance of defined benefit pensions is the biggest advantage public employees have over private sector employees, nearly one-third of all public employees are not eligible for Social Security and therefore may rely solely on their pensions as retirement income. For example, a public employee earning $35,000 at the time she/he retires with 30 years of service who is not eligible for Social Security would get an annual pension equal to 60 percent of final earnings. If that worker retired from a mid-size or large private company, his/her pension plus Social Security would equal 59 percent of final salary.10

Public sector employers also have changed the way in which they finance pensions. Since the 1970s, public employee pensions have steadily moved away from pay-as-you-go to an actuarial-based reserve system that mirrors the pension funds of private companies.11 In recent years, states and municipalities have occasionally adjusted their actuarial assumptions to reduce pension contributions so they can balance budgets or pay for tax cuts. Since public employers are not governed by ERISA, the federal Employee Retirement Income Security Act of 1974, the adequacy of funding for future obligations cannot be taken for granted by state and local government workers. Many states and municipalities now face unfunded liabilities in the millions of dollars. So, while public employees may have the theoretical advantage of widespread pension coverage, the ability of their employers to actually pay benefits when they come due is not as guaranteed for public workers as private workers.

9John Cranford, "Providing Cover: A Look at Public Employee Benefits," Governing, December 1993, p.47.
10Ibid, p.47.

11Ibid, p.47.

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