Thursday, December 2, 2010

Private Sector Employers Outpace Public Employers in Retirement Benefits Paid for Decades

We were digging around the Employee Benefit Research Institute site the other day to see what they offered in comparing public sector and private sector retirement benefits in terms of total compensation.

In case you don’t know them, the Employee Benefit Research Institute is a non-partisan research organization that uses a wide range of research and data to compile reports about retirement benefits in the United States. The EBRI Founders are executives from some of America’s leading companies for executive recruitment and compensation – they aren’t pushing political agendas. Thus we encourage those of you who are serious about understanding the trends and dynamics surrounding pensions in the private and public sector to spend a lot of time on this site.

Anyway, in our search for comparison data, we could not find one particular study that directly answered our question. But in rooting around we saw that the January 2009 study, “Where – and How Much – Do Employers Spend on Compensation?” had data showing how much employers spent on their employees’ total compensation for the past four decades through 2007. The study went one step further and broke out the retirement benefits paid by private and public sector organizations.

We did a little number crunching ourselves by pulling the gross retirement benefit numbers paid for employees by state and local governments and comparing them to the retirement benefits paid by private employers. The key was calculating the rate of increase for each by decade. (Comparing the dollar amounts themselves wouldn’t really meaningfully demonstrate anything due to the differences in size of the private and public sectors.)

So what did we find?

Private sector employers have increased their spending on retirement benefits (excluding Social Security) at a faster rate of growth in three of the last four decades (through 2007).

In only one decade, from 1980-1990 did public sector employers far outpace their payments for retirement benefits over those paid by private sector employers. (The 1980s were a fast growth decade in general, recovering from economic doldrums in the 70s, and it’s likely that private sector employees’ regular pay accelerated more quickly than public sector employees pay did. But that’s speculation and are neither here nor there in relation to this discussion.)

Our number crunching effort can be seen in the chart below. Pay particular attention to the rate of growth figures.

What should we make of these numbers?
Well, they disprove the notion that the retirement benefits paid to state and local government are excessive by comparison to the private sector. They simply aren’t, and they haven’t been.
These numbers indicate the opposite, that state and local government employers need to do more to keep pace with private sector employers for retirement benefits that attract quality employees!

We doubt that cities will want to hear that as they struggle with their budgets during this economic downturn, but these numbers take steam out of the politically fashionable argument du jour that since the private sector is doing it the public sector should be doing it too. – Max Patterson

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