Comparison of Education Benefits vs. Private Industry

One of the factors we hear about in comparing the relative salaries of those in the education business vs. private industry is the difference in retirement and healthcare benefits.

It is generally understood that such benefits are “plusher” in education (as in most government jobs) than in private industry, but is that true – and if so, how much?

Here’s my look at this….

In private industry the components of benefit costs to both the employee as well as the company on behalf of the employee are usually:

1) Employee contributions to defined contribution plans (401K, 403b, etc.)

2) Employer contributions to the same plan, typically called a “match” because it usually matches what the employee contributes, up to whatever the maximum match is (3%, 6%, etc.)

3) Employee contributions to Social Security.

4) Employer contributions to social security. Usually this is the same percentage for both.

5) Employee contributions to healthcare premiums (medical insurance, dental insurance, etc.)

6) Employer contributions to healthcare premiums.

7) Any other miscellaneous employer contributions to other benefits for the employee that are not a part of paycheck compensation (like contributions to HSA plans, for example.)

Retirement Benefits

With that, the most recent calculations for the retirement portion of benefits are below.

From this, we see as of this latest data, CalPERS members (usually support staff and administration) receive an additional 10.23% in the form of retirement compensation than private employees, and CalSTRS members (teachers) receive an additional 18.23%

Data For FY2020
Employee Contribution4.30%7.00%10.25%Employee Rate varies depending on when the member entered the plan, this is the maximum.
Employee SS6.20%0.00%0.00%Some CalPERS programs require member and district SS contributions, unclear which.
401K Match4.30%0.00%0.00%Vanguard “How America Saves” (not published yet), using 2019 number for now.
Employer SS6.20%0.00%0.00%
Local Agency0.00%19.72%18.40%
Additional0.00%0.00%2.50%SBMA Account “to maintain the purchasing power of benefits”
Other0.00%1.012%0.00%CalPERS “reduction due to Gov Code Section 20825.2(a)”
Employer Total10.50%20.73%28.73%

Healthcare Benefits

Calculating heatlhcare differences is not so easy, given that cost is not standardized statewide as pension plan contributions are.

Typically in private industry, according to this study by the Kaiser Family Foundation, in 2019 “On average, covered workers contribute 18% of the premium for single coverage and 30% of the premium for family coverage.”

I have not been able to find any real data on the distribution between single and family coverage, however this article in USA today indicates in 2018 46.7% of California households were married couples.

Given that’s about 50%, we’ll split the difference and say in private industry, employers pick up 76% of the cost (employees pay 24%.)

In education, we have a 2019 PACE study that says that statewide the average is for districts to pay 85% of the cost, although that varies tremendously by district (see table on page 5.)

The conclusion here is that school districts pay about 9% more of the cost of healthcare than private employers do.

Now… 9% is what portion of their pay?

Back to the PACE study, which says in 2017-18, the average cost of teacher healthcare was $14,604. If that represents 85% of the cost, the total cost would be $17,181.

If we bounce that off the average teacher pay for the same year ($80,680, from the CA J90 reporting, which is where they say they got the healthcare costs) then total healthcare cost is 21% of the average teacher’s salary.

9% of 21% means the extra benefit for healthcare coverage is about 1.9% of pay.

Adding the total retirement plan extra benefit to the CalPERS retirement benefit gives us a total extra benefit of 12.13%

Adding the total retirement plan extra benefit to the CalSTRS retirement benefit gives us a total extra benefit of 20.13%.