Comparison of the value of state employee benefits

Fiscal Research Division Salaries and Benefits Comparison of the Value of State Employee Benefits Fiscal Brief March 6,2015 Total value of State employee benefits in NC is roughly comparable to value in other states and exceeds value of benefits at large private employers at current interest rates. Executive Summary Employee benefits such as retirement income (pensions), retiree medical insurance, and active employee medical insurance are significant components of total compensation for State employees in NC. The total value of these benefits is similar to the average value of benefits offered by other states. However, the mix of benefits is somewhat different. NC provides significant subsidies for retiree medical insurance and little or no subsidy for dependent (spouse and child) medical insurance, as compared to other states. The total value of benefits for State employees in NC is currently greater than the average value of benefits offered by large private employers in the US. NC offers pension benefits that are somewhat more generous, particularly when measured at current low interest rates. Similar to other states, large private employers provide a very different mix of retiree and dependent medical insurance subsidies than the State provides to its employees. This brief only discusses the value of benefits. Any comparison of total compensation relative to other states and the private sector would also need to consider the relative levels of wage compensation. General Background Throughout this brief, we will use the term “State employees” to refer to employees who are eligible for a general set of benefits established in State statute and administered by the State. These benefits include the Teachers’ and State Employees’ Retirement System (TSERS), the State Health Plan (SHP), and several other programs. Over 95% of the employees in these programs are employed by State agencies, the University of North Carolina System, local community colleges, or local education agencies (LEAs).1 For each type of benefit, this brief compares to both other states and large private employers. It does not compare to small private employers because the State and the majority of individual community colleges and LEAs would be considered large employers. However, many North Carolinians work for small employers and thus it may be useful to note the general disparity in benefit value between large and small employers. Based on data from the U.S. Bureau of Labor Statistics2, Retirement and Savings and Insurance benefits make up 9.0% of total compensation at private employers with less than 50 employees, but 15.7% of total compensation at private employers with 500 or more employees. Many small employers do not offer health or retirement benefits, while many large employers, particularly those that hire college graduates, would be unable to compete in the labor market without offering such benefits. This brief focuses on benefit value, but in designing benefit programs the General Assembly should consider other factors as well. For example, it should consider: • How benefits support its goals for attraction, retention, and orderly transition of the State’s workforce. • How risks are divided between the State and employees. • How efficiently the benefit programs are administered and communicated • How effectively they meet the needs of State Employees. • How the benefits incent employees to work more productively and better manage health and personal finances. This brief focuses on average benefit values across other employers and across individual employees. Underlying these averages is enormous variation in benefits from one employer to another and in the value