The University of Michigan contributed $217.9 million to its employees’ retirement plans in 2010. The school’s retirement plan matches up to 10 percent of employee pay. U-M’s retirement payments have increased 21 percent (unadjusted for inflation) since 2006, when it handed out $180 million in retirement contributions.
The university contributes 10 percent if employees put in 5 percent of their pay. If an employee makes no contribution, U of M still puts in 5 percent if the employee is 35 or older with at least two years of service.
James Hohman, a fiscal policy analyst from the Mackinac Center for Public Policy, said U of M’s 10 percent contribution is not as high as other public institutions, but is still above that of the private sector.
“You are asking taxpayers to pay for these benefits,” Hohman said. “Those (private-sector) taxpayers are not getting 10 percent retirement benefits.”
The Mackinac Center’s recent pension study highlighted two survey examples showing that private-sector retirement plans are usually far less generous than public plans. One example was a survey of 24 large Michigan companies with a combined workforce of more than 600,000 salaried employees. These companies had a maximum average employer contribution of just over 6 percent of employee pay.
Another survey referenced in the pension study revealed that typical Fortune 100 workers covered by a defined-contribution “401(k)” style retirement plan received company contributions of 5.77 percent.
The large U of M retirement payments are part of a trend that Hohman has examined. He asserts that $5.7 billion could be saved each year if the benefits of public-sector workers were brought into line with what private-sector workers are given.
From 2006 to 2010, the University of Michigan contributed $1 billion to the retirement plans of 33,000 employees. Meanwhile, average in-state undergraduate tuition at U-M has increased 21.7 percent between 2006-07 and 2010-11, not adjusted for inflation.
Rick Fitzgerald, spokesman for U of M, provided the following response regarding the university's retirement plan:
"A study of 27 peer institutions across the nation, found that a 10 percent match to an employee’s 5 percent retirement contribution was needed for U-M to remain competitive among our peers for faculty and staff.
"One recent change affecting the university’s retirement contribution went into effect Jan. 1, 2010, when the university implemented a one-year waiting period for all new employees before the 10 percent match would take effect.
"By the end of 2011, we project that this change will achieve an annual reduction of about $11 million in university contributions toward retirement savings.
"This change was the result of a faculty-led committee that studied the higher-education marketplace and arrived at this as a way to reduce costs while staying competitive with our peer institutions."
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.