Commentary: Bringing Local Government Benefits in Balance

Gov. Rick Snyder’s message to local governments would start bringing local government employment benefits in line with private-sector averages.

The governor called for replacing the state’s statutory revenue-sharing program with an incentive to make the government more transparent, share services and most importantly, lower employment costs.

In order to qualify for a portion of the incentive, local governments have to show that their retirement benefits and health insurance benefits meet a few standards:

• Retirement benefits can cost no more than 10 percent of salary
• Pension benefits must contain no higher than a 1.5 percent multiplier (or 2 percent if the employee is not eligible for social security benefits)
• Pension formulas must not include a loophole where employees cash in on unused paid leave and ramp up over time in order to inflate their pensions
• At least 20 percent of new employee health insurance premiums must be borne by the employee (or benchmarked against the state’s HMO plan).

The governor is benchmarking these benefits against private-sector averages. Michigan’s private sector offers retirement benefits that cost employers around 5 percent to 7 percent and have moved away from offering pension benefits based on final compensation.

Michigan’s private sector has likewise sought to lower insurance costs by adjusting eligibility, increasing co-pays, moving to consumer-driven health plans and increasing premium-sharing. The average employee covered by an employer insurance plan pays 21 percent of the premium, so the governor’s target is pretty close.

Reforming other benefits like paid leave and performance bonuses would not be incentivized under the governor’s plan, though these benefits can be substantial.

Overall, bringing government employee benefits in balance in every level of Michigan’s state and local governments would save the state $5.7 billion. The governor’s plan to incentivize local governments to broach benefits is one way to help ensure that Michigan’s public employees receive compensation that is fair in comparison to the private sector.