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Are public pensions too rich?

By Jennie L. Phipps ·
Tuesday, May 6, 2014
Posted: 3 pm ET

Since the Great Recession, public discussion of the pensions afforded public employees has escalated. Many of us who work in the private sector feel a little envious when we consider the old-fashioned defined benefit pensions that our friends and neighbors employed in public sector jobs can expect.

A defined benefit pension guarantees a worker an often generous amount of money throughout his or her retirement -- and frequently the amount is adjusted annually for inflation. These pensions are generally paid for by employers and, more recently, workers have also contributed. They're guaranteed by the governments and, ultimately, by taxpayers.

What a deal.retirement-blog-pensions-are-a-promise-shirt

Those of us who work in the private sector where defined benefit pensions have mostly gone the way of the Dodo bird can't help but be envious. As the Manhattan Institute, a nonprofit think tank focused on public policy, says, "Pensions are now one of the most hotly debated topics in public finance, due to their rising costs and generosity relative to what most taxpayers receive."

To help people understand this retirement planning issue better, the Manhattan Institute has devised a calculator that allows anyone to compare pension benefits among states and to their own situation. You just click on a state, select a pension system, plug in the salary and number of years worked and the calculator provides an estimated monthly and annual pension total. It also figures out how much 401(k) savings you'd need to replicate that guaranteed retirement income.

Stephen Eide, a senior fellow at the institute and one of those responsible for devising the calculator, says, "Pensions are a lot of money, and it is a very complicated money."

He explains that this calculator represents only the largest of the public pension systems across the country; there are thousands of smaller ones that operate similarly. He also points out that 70 percent of public pension participants pay into and are eligible to receive Social Security benefits undiminished by the Windfall Elimination Provision, or WEP, or the Government Pension Offset, or GPO.

In many states and municipalities, pension budgetary shortfalls are a hot topic. In bankrupt Detroit, for instance,  cuts to promised pensions are almost inevitable. The current tentative agreement requires the state legislature to kick in $350 million in state money. The vote may not go Detroit's way. If there is no approval, then it's back to the negotiating table, with larger cuts to pensions and the sale of the city's art collection hanging in the balance.

"I think that the public is supportive of reform," Eide says. "But it isn't that easy. It isn't just public will. There is a question of what states legally can do. Some of the states with the worst problems -- Illinois and California -- can't do much to adjust their benefits. All they can do legally is just change the rules for people who aren't yet hired."

Do you think pensions for public employees are too generous?

Here's what you can do if your public pension plan is threatened.

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February 17, 2015 at 9:46 pm

One thing is clear reading through the comments, not all private and public pensions are created equal. There are good arguments here on both sides of the issue. Irresponsible politicians, greedy CEO's, promised money, unfunded programs, and the list goes on. Many web sites show 75 cents of every dollar owned by 10 percent of the population with the top 1 percent owning 50 cents of the buck. Most of our comments seem to me to be the remaining 90 percent fighting over the remaining 25 percent of wealth.

July 11, 2014 at 9:32 pm

Why do people think that government employees, especially state employees are leaches for expecting a pension? In the state of Ohio, state employees are forcibly made to give up 10% of the top of their salary in order to contribute to the SERS pension program, and as the comment from the firefighter informs are, the state employees get double jeopardy for being hit by WEP even if in previous employment, they had worked in the private sector and contributed more than 40 points to the Social Security System. Public employees do not wholesale get a hand out for their pensions. They are forced to contribute 10%, at least for OH SERS folks, to the pension program, without even benefiting from the interest earned by the state for holding on to the employee's money for all those years of service. Before uninformed tax payers form a mob against dedicated public servants, they should really stop and know about each of the pension programs. They are not 100% funded by the government, but by the workers, too.

May 16, 2014 at 11:41 pm

Go Figure,
Public employees wait to be fully compensated until their pensions plans come in after retirement. Only a con-artist would expect someone to work for thirty years with the promise of being paid in retirement and then have it taken from them. Get over your pity, pay us what we earned.

May 09, 2014 at 4:18 pm

The public worker pension system in Wisconsin is well run and other states should do the same.
They hire their own staff to manage the trust fund rather than paying out big bucks to financial managers on the East coast.
They claim to be defined benefit but most people take the benefit set by the contribution.

May 09, 2014 at 11:19 am

For all those that are complaining about public pensions why didn't you get state/gov. jobs? No degree needed.
What is the saying: too smart, too late?
So now put your lollipops away and live with your decisions.

Jay Hurley
May 09, 2014 at 6:02 am

I have a simple solution for the dilemma faced by public sector pensions. Follow the same requirement as private sector pensions and don't allow payout until the recipient has reached retirement age. I've worked in the private sector all my life and have been fortunate to be vested in three separate pensions from different companies. I can't draw from any of them until I have reached 62 1/2 years of age. This requirement, if applied to the public sector would put all the public pension funds in the black.

Russell D Salyers
May 08, 2014 at 9:38 pm

Having worked in the public sector for 37 years I can tell you that I am affected by the Windfall Elimination Provision and the Government Pension Offset because as a fire fighter in Michigan I did not pay into Social Security during my employment. All of my other employment required payment to Social Security but my benefit will be slashed by 60% due to my pension from the fire department. I do not think that my pension is too rich. I worked for less money than most in the private sector and received good benefits for that sacrifice.

May 08, 2014 at 8:42 pm

Dennis I live in the state of Illinois, they post all the salary's and pensions in the newspaper, 55,000 is the low end the higher is 70,000 to 80,000. That's just what it is. For teachers. Municipal is different, There is police officer's In Rockford Il that make roughly the same as district attorney's. That's with the over time.