Anyone who's ever gotten a paycheck from a non-government company has become very familiar with Social Security and Medicare (also known as FICA) taxes. Until you make more than around $97,000, you'll have 6.2% of your earnings taken out and given to the federal government for your Social Security tax. For Medicare, there's no limit and you pay 1.45% of all your earnings. Your employer withholds these amounts and pays them - along with their matching amounts - to the government.
In public employment in Ohio, there is a similar system called PERS (Public Employees Retirement System). Personally, I think PERS is better in that the money is in your own personal account and has better earnings than SS does. But the contributions are done in a similar manner with the employer and employee making contributions. (See ORC Chapter 145 for more information)
Under PERS, the 2007 employer contribution for retirement will be 8.65% for local employers. Employers also pay into the Retiree Medical Acount and a Mitigation Factor bringing their total contribution to 13.85% (see this document for more details). Employees contribute 9.4% under this plan.
EXCEPT...unions have, for years, negotiated a 'PERS pickup' in lieu of wage increases - in addition to wage increases. Under this concept, the employer agrees to pay some of the employee's 9.4% in addition to the 8.65% employer portion that they're required to pay. In Toledo, the amount of the pickup ranges from a portion to all the 9.4%...and such pickups apply to non-bargaining units as well.
(Trying to collect the information about how much of the 9.4% employee contribution is picked up proved to be quite a task, but that's another post soon to come.)
This is a terrific deal for the employees...They're getting that money into their dedicated retirement accounts (pre-tax) but not having to pay it themselves. From an administration standpoint, it sometimes makes political sense to negotiate such a benefit. People often make an issue of the amount of pay increases or vacation amounts, but usually pay little attention to other such negotiated benefits like PERS or uniform allowances, etc.
In Toledo, this PERS pickup costs us significantly each year. An employee making $42,000 would normally pay $3948 into their PERS account. However, if you're in AFSCME Local 7, that $3948 is completely paid by the City of Toledo.
Police and Fire contribute to the Police and Firemen's Disability & Pension Fund instead of PERS. Beginning in 2008, the city will pick up all of their contributions. For 2007, they'll still pay 1.5% of their 9% contribution themselves. So if you're a patrolman with 10 years of seniority, you'll make $53,451.84 in 2007 and the city will pay $4008.89 of your pension contribution and you'll pay $801.78. In 2008, when your salary goes up to $55,055.52, the city will pick up all of your contribution - to the tune of $4955.
(For estimating purposes, I used an average amount of pickup of $4900 and multiplied that by 690, the approximate number of sworn officers, to get a rough cost of this benefit...$3,381,000 for one year just for the police department. When you start adding in all the other unions and employees, you can see the fiscal impact of this benefit.)
I realize that these pick-ups are fairly negotiated...but they're also subject to 'me-too' bargaining...and when one unit manages to get all their contributions "picked up," it's only a matter of time before the rest of the units want the same thing. And once you've said 'yes' to one union, it's really hard to say 'no' to the others.
Now, I know items which are given in negotiations are extremely difficult to recover. But considering the amount of the budget deficit that Toledo is facing, it may be time to re-think this negotiation strategy and begin a return to the mandated amounts. Afterall, the taxpayers who are footing the bill for these pickups rarely have such generous packages themselves..and before the City starts talking about tax hikes, it may be wise to remember this fact.