In light of the results in Wisconsin, here’s a plan for Governors to get their states back in order with fairness to all.
Message to Governors: Now is the time to fix your fiscal messes. Ride the wave of Wisconsin and bring your employee compensation systems back to reality, eliminate your deficits and debt.
It is important to clearly state that this is not about punishing public sector employees, and I want to make that statement clearly in this post and urge Governors to emphasize the same thing. The objective here is fairness, not punishment. Fairness means two things in this case. The first is it means that public sector and private sector employees should earn similar salaries and receive similar benefits for jobs that require similar skills in the private sector. The other aspect of fairness in regards to these changes is that plans to transition to new compensation and benefit packages must be fair to existing public sector employees. As such, they should not be fully implemented overnight but instead phased in over time. We have been making false promises (usually in return for union campaign donations) to these employees for years. This cannot be undone overnight to all employees.
Here are a list of suggestions as to how Governors should proceed to generate a fair solution to all:
1. Clearly articulate to the people of your state what the current economic conditions are in your state. Explain your current debt and deficit, and projected debt and deficit if nothing changes. This will create a clear sense of urgency among your people, as well it should. Make it clear: “We have a problem that MUST be solved.”
2. Make sure your people know that you are not out to vilify or hurt anyone, and your objective is fairness. As such, you will ensure employees of your state are being paid what they deserve relative to market salaries commensurate with the private sector, healthcare commensurate with the private sector, and use private sector retirement structures for employees.
3. Ensure those who are within 5 years of retirement, and those currently in retirement, clearly understand that nothing in your plan will effect their retirement benefits (assuming this is affordable in your state).
4. Outline a tiered structure for the remainder of your employees such that the closer they are to retirement (again excluding those in item 3 above) the less impact your new plan will have on them.
5. For employees with 1-15 years of employment, they will now (immediately) be responsible for 20% of their health insurance costs, will have an employer-sponsored 401k account, and will receive dollar for dollar matching for the first 6% of their salary that they put into such an account. This would be very similar to plans available in private sector employment (many private sector employees don’t even get the 6% match).
6. For employees with 15-20 years of employment, develop a combination pension/401k plan that provides 30% of the pension previously offered, and a 401k plan that has 6% matching as described above. For health benefits, they need to also contribute 20% of the cost of the premium.
7. For employees with 20-25 years of employment, develop a combination plan that is 50% of the previously committed pension, and a 401k plan that has 6% matching. They also contribute 20% to their health insurances premiums.
8. If retirement ages and years of service requirements for certain public sector jobs (such as police officers, many of whom can retire after 20 years of service) are out of line with the private sector, these should be adjusted.
Transition plans as described above are fair to all and will reduce our government spending and our tax burden significantly. Executed effectively, private sector taxpayers and public sector workers will be on the same plane, deficits will disappear, and debts will be eliminated.
Now is the time for Governors of both parties to take actions similar to those described above.