Benefits
Graph: HMO – Health Contributions
Graph: PPO – Health Contributions
Graph: PPO – Dental Contributions
Health
The State contributes $788 per month toward employee health premiums (for family coverage), which equals 80 percent of the total premium for most State employees. This level is on par with other public employers, but higher than the private sector.
- All 65 of the surveyed public sector employers provide either a health benefit plan or a cafeteria1 plan. Monthly contributions toward health benefit plans range from $501 to $1,769. Public employers’ monthly contributions toward cafeteria plans range from $465 to $893.
- According to the 2005 California Employers Health Benefit survey, 67 percent of all private sector employers in California provide some sort of health benefit coverage. Ninety-eight percent of all large private firms2 in California provide health benefit coverage.
The graphs HMO – Health Contributions and PPO – Health Contributions compare employer and employee health premium contributions in the State and private sector.
Dental
The State contributes $89.55 per month toward employee dental premiums, which is 75 percent of the total premium for most State employees. This level is on par with other public employers but higher than other large private employers.
- Of the 65 public sector employers in the survey, 39 provide dental benefits in addition to their health benefits. The employers’ monthly contribution for these dental benefits ranges from $34 to $153. Eleven of the 65 include dental coverage in their health benefits or cafeteria plan.
- The vast majority (95 percent) of private sector employers in this study provide some form of dental benefits, covering an estimated 62 – 65 percent of the premium for family coverage ($65 - $77 per month).
The graph PPO – Dental Contributions compares State and private sector employer and employee contributions to dental premiums.
Vision
The State contributes $9.19 per month for employee vision benefits, which is 100 percent of the total premium. The State’s practice is consistent with vision benefits provided by the other public sector employers surveyed.
- Thirty-two of the 65 public sector respondents provide vision coverage in addition to their health benefits plan, with monthly contributions ranging from $4 to $22. Thirteen of the public respondents include vision coverage as part of their health benefits or cafeteria plan.
- The average private sector contribution toward vision benefits was not available, but the data we used indicate 56 percent of private employers provide some form of vision plan; two-thirds of them pay 96 - 100 percent of the total vision care premium.
Retirement
The State provides a defined benefit plan that guarantees a lifetime retirement benefit, a benefit similar to what most of the surveyed public sector employers provide. The private sector generally offers defined contribution plans rather than defined benefit plans. Defined contribution plans are more portable than defined benefit plans, a value difference this survey did not attempt to measure.
- Most State employees in the benchmark classes fall under the 2%-at-55 formula.3 Of the 65 public respondents4, 21 use the same 2%-at-55 formula. Thirty-four offer a more generous formula.5 Ten provide a less generous retirement formula than the State.6
- Like the State, 29 of the public respondents base the retirement benefit on the employee’s single-highest year of compensation. Sixty have a vesting eligibility period7 of five years, as does the State.
- The vast majority of private sector employers covered by this study (92 percent) offer defined contribution retirement programs. Most of them match the employee contribution, none more than 5.5 percent of salary.
Exhibit F presents retirement information such as benefit, formula, plan, and vesting periods for the public respondents.
Exhibit G shows that a private sector employee would have to contribute a higher percentage of salary to a defined contribution plan to get the same benefit a State employee would receive from the defined benefit plan. In addition, a private sector employee would pay all the contribution toward retirement (unless the employer provides some portion of the contribution in matching funds, which typically don’t exceed 5.5 percent). The State employer pays all but about five percent of the retirement contribution for its employees in the Miscellaneous retirement category.
Retiree Health Benefits
State employees receive generous retiree health benefits, the costs of which are often overlooked as a portion of their compensation. In this area, the State’s coverage exceeds that provided by most of the surveyed public sector employers, and is far more generous than retiree health benefits provided by the majority of private employers.
- For a vested retiree,8 the State contributes $394 per month for retiree-only coverage, $738 for retiree plus spouse, and $933 for retiree plus family. That’s 100 percent of the premium for the retiree and 90 percent for the retiree’s dependents.
- Of the 65 public employers surveyed, only 35 contribute to two-party health benefits; contributions range from $65 - $2,307 per month. Seventeen of them have the same rate for two-party coverage as the “retiree only” rate.
- The majority of public respondents that contribute to retiree health premiums have an eligibility period of 5 years (20 agencies) or 10 years (10 agencies).
- In the private sector, only 2 percent of small firms and 32 percent of large firms offer retiree health benefits. Recent trends indicate that employers are shifting a greater portion of rising health care costs to employees and retirees and/or capping the amount the employer contributes to retiree health benefits.
- Among private employers, the data used for this project indicates that 7 percent of private employers provide retiree health benefits for the retiree only (not spouse or other family). That data also indicates that an unspecified number of private employers provide coverage for dependents.
Exhibit H compares retiree health coverage for each public employer in the survey, including the amount paid by the employer for retiree, retiree plus spouse, retiree plus family, and the vesting policy for management and other employees.
Estimating the “worth” of retiree health benefits
As the following example demonstrates, a career State employee, eligible for the full employer contribution for retiree health benefits, secures an additional $493,851 worth of compensation during the first 20 years of retirement, absent any future changes.
This example assumes the employee retires at age 60 and based on life expectancy tables will live to 80. Employer contributions in this example are based on the State’s 2006 two-party rate ($738 per month). Premium projections are based on a 9 percent historical average of annual premium increases.
It should be noted that by the time the next survey of total compensation is conducted, public employers will have implemented new standards from the Government Accounting Standards Board (GASB) that require future health costs to be included as outstanding liabilities. This change will allow the survey to more fully compare the “worth” of retiree health benefits.
Retiree Health Cost Projection
| Year after retirement | State employer annual contribution |
|---|---|
| 1 | $9,653 |
| 2 | $10,522 |
| 3 | $11,469 |
| 4 | $12,501 |
| 5 | $13,626 |
| 6 | $14,852 |
| 7 | $16,189 |
| 8 | $17,646 |
| 9 | $19,234 |
| 10 | $20,965 |
| 11 | $22,852 |
| 12 | $24,909 |
| 13 | $27,151 |
| 14 | $29,594 |
| 15 | $32,258 |
| 16 | $35,161 |
| 17 | $38,326 |
| 18 | $41,775 |
| 19 | $45,535 |
| 20 | $49,633 |
| Total over 20 years: | $493,851 |
Retiree Dental Benefits
The State provides a more generous retiree dental benefit than most of the public employers surveyed. Most of the private sector employers don’t offer retiree dental benefits.
- The State contributes $89.55 to dental premiums to provide “retiree plus family” coverage; $61.73 per month for retiree plus spouse; and $35.04 per month for retiree-only coverage.
- Only 15 of the 65 public sector employers surveyed provide dental coverage for the “retiree plus family” category, either as a separate dental benefit or as part of the overall medical benefits.
- There was no data available regarding dental benefit coverage for retirees in the private sector.
Exhibit I shows retiree dental benefits provided by the public sector employers surveyed.
Paid Leave
The State of California offers two types of leave programs – Annual Leave and Vacation/Sick Leave – and 14 paid holidays. In general, the State’s leave programs are more generous than such programs in the private sector. The public sector employers surveyed offer similar annual leave and vacation/sick leave programs, but relatively few of them provide as many paid holidays.
Unlike many public employers, the State does not provide paid administrative leave or a leave buy-back program.9 However, regulations allow for a buy-back program subject to available funds and DPA approval.
Exhibit J compares public sector leave practices. Exhibit K describes private sector practices.
- Of the 65 public sector employers we surveyed, only 16 provide 14 or more paid holidays. Private sector employers average 12 paid holidays (9 fixed, 3 floating).
- Only 37 of the public employers provide as much sick leave as the State (12 days per year), while 13 of them provide less (5 to 11 days). Twelve of the public respondents provide more than 12 days per year (up to 15 days).
- Private sector employees typically accrue 9 - 10 days of sick leave each year, with a maximum accrual cap of 29 - 37 days for non-managers and 48 days per year for managers. The State does not cap sick leave.
- 33 of the 65 public sector employers provide paid administrative leave for managers (4 -16 days per year). Six of the public employers provide this benefit to non-managerial employees (2.5 - 10 days per year). The State does not provide paid administrative leave as a benefit.
- 28 of the 65 public respondents offer leave buy-back programs for managers; 22 also offer leave buy-back to non-managerial employees.
FOOTNOTES
1 - A “cafeteria” plan generally refers to a fixed cash amount the employer provides the employee to allocate among the various benefit options the employer offers.
2 - 1000 or more employees
3 - “2%-at-55” means that the employee may retire at 55 and receive 2% of his or her salary for each year of service.
4 - Of the 65 public sector employers surveyed, 28 are in the same retirement system as the State (California Public Employees’ Retirement System, or CalPERS).
5 - Considered more generous: 2% at 50; 2.1% at 60; 2.2% at 55; 2.5% at 55; 2.5% at 60; 2.6% at 62; 2.7% at 55; 3% at 60.
6 - Considered less generous: 2% at 55 1/2; 2% at 57; 2% at 61.
7 - The “eligibility” period is the minimum required period that the active employee must be enrolled in the plan to qualify for the benefit in retirement
8 - After 10 years of service, the State pays 50% of the employee’s premium. For employees with 11 to 19 years of service, the State pays 50% of the premium plus an additional 5% for each year of service over 10 years. After 20 years of service, the employer pays 100% of the premium.
9 - However, State employees do receive the cash value of unused leave when they retire or leave State service.