Policy
Given the economy and the state's demographics, taxpayers are increasingly unable to afford the compensation and benefit arrangements of the state and local governments. They are not sustainable now and won't be for the foreseeable future. Recent research from the Minnesota Taxpayers Association shows that, often times, public employee wages and benefits are more generous than their private-sector counterparts. This research is consistent with previous research conducted by the Minnesota Chamber. In addition, the state and local governments cannot adopt more modern human resource practices due to outdated laws. A fundamental redesign of government human resource practices is needed to make the system affordable. To address these concerns, the Chamber supports the following:
Pensions
- Employee/employer contribution: During the FY 2012-2013 biennium, the employer contribution for state pension plans should be reduced and the employee contribution should be increased by the same amount. Doing so will hold the pension plan and retirees harmless but save the state significant dollars. A similar recommendation was enacted in the 1980s to help balance the budget.
- Solvency: The Legislature should prohibit any cost-of-living or inflationary adjustment to retirees unless the retirement plan is fully funded. In addition, the Legislature should require pension plans to retain a reserve for adverse markets before any increase in benefits is considered. These recommendations are designed to stop policy-makers from making additional unsustainable increases in pension benefits.
- Transparency: The Legislature should require any government entity seeking to increase retirement benefits to prepare and review in public a multiyear fiscal sustainability analysis. This will make sure that taxpayers are aware of the long-run impact of the proposed change.
- Reporting: The Legislature should require valuation studies to include a sensitivity analysis with lower assumed returns. At present, the state assumes an 8.5-percent annual return in perpetuity. That assumption might not be sustainable. The fiscal health of pension plans should accordingly be evaluated with alternative assumptions on future growth such as 6.5 percent or 7.5 percent.
- Hybrid pension plans: Public employees should be transitioned to hybrid pension plans that combine a basic defined benefit plan with a defined contribution plan. Doing so will transition public pension plans to a structure that is fiscally sustainable and more comparable to what's offered in the private sector. The defined benefit component, when combined with Social Security benefits, should address retiree income security based on senior spending needs rather than preserving preretirement lifestyles and spending capabilities.
Health Care Benefits
- Plan design: The state and local governments' health care benefit plan design should be more comparable to the private sector. Many government entities still pay 100 percent of a single person's premium. This typically does not occur in the private sector. On average, in 2009, single individuals contributed about 20 percent of the cost of their health care premiums. Co-pays and deductibles also should be adjusted so they are more comparable to what's offered in the private sector.
- Transparency: The Legislature should require any government entity to disclose its plan design and cost-sharing arrangements to the public. This will allow the public to compare the government plan with the health care plan their employer offers.
- Early retirees: The Legislature should eliminate the mandate that allows early retirees to stay in a government entity's active health insurance pool until they can enroll in Medicare. The impact of keeping retirees in the pool is to increase the costs to the government entity because retirees typically consume more health care dollars so the pool becomes more "risky."
Human Resource Laws and Practices
- Steps and lanes: Government entities should eliminate the use of "step and lane" compensation systems. They are outdated and inefficient. Compensation dollars that are associated with steps and lanes could be reallocated to a more results-driven compensation system.
- Pay equity/comparable worth: The Legislature should repeal the state's pay equity/comparable worth law. It is outdated and hampers a government entity's ability to manage the workforce. It is also an unfunded mandate to local governments.
- Competitive sourcing: The Legislature should remove any restrictions to competitively sourcing services. This does not mean that the state or local governments should outsource all services. Instead, the Chamber supports having public employees compete with the private sector for the provision of services.
- Arbitration considerations: The Legislature should require labor arbitrators to consider the total compensation and prevailing benefit levels offered in the private sector. This should help make sure that future compensation and benefit decisions do not become out of line with private-sector counterparts.
Business Impact
There are documented differences between public-sector and private-sector compensation and benefits. Given the significant budget shortfall that the state faces, addressing the government benefit premium and redesigning human resource practices can be an effective strategy to balance the budget without hurting the level of service delivery.
