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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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May 08, 2014 at 11:09 am

I partially disagree with Republican. Teachers are public employees that DO often have masters degrees and so a salary of $50K is not in any way out of line considering what their level of education can bring in the private sector. Also saying she has 2.5 months of vacation does not begin to address the MANY UNCOMPENSATED hours of work teachers put in after school and on weekends that more than makes up for Summers off. As far as a 1.5 million dollar pension, I'd have to live till at least 90 to get that much....just depends what state you work in and the level of affluence of the city you work in to pin down what someone can expect for a pension.

May 08, 2014 at 11:08 am

I worked in a prison for 23.5 years as a secretary, inside the walls. My pension (take home) is barely over 1400 per month. I personally think that if an agreement is made for employment and you retire with that agreement, it should not be taken away. I am now 72 years old and could not live without my pension and social security combined and I know I am not the only one. They both should be left alone.

May 08, 2014 at 11:07 am

The underlying problem is private companies have to actually budget for pensions and show them in their future projections. The public sector does not. So politicians give better pensions to public workers without a method to pay for them in the future. Now the bill is due, Whose fault? Politicians for one for being inherently dishonest in doing it this way, Public Workers for agreeing to this method knowing there is no fund to really pay them all of this, and the Voters for being blind to what has happened. Detroit now sees the problem. CA and IL too but the voters still do not fully realize. It has nothing to do with parties or ideology, it has to do with HONESTY.

May 08, 2014 at 10:59 am

If a teacher worked in the 80"s making $1500 a month, then in the 90's making $2400 a month, then in the 2000's making 3200 a month
why when they retire they get 5000 a month to stay home? It doesn't add up. agree, comments?

May 08, 2014 at 10:59 am

The point that KG makes that public sector employees earn less than private sector employees is simply false and has been for well over a decade. The public sector earns more for the same work on the backs of those that pay their salary. Utter nonsense for a job that has close to zero risk, as there is no market in which they compete. As for the DB plans that are often way beyond anything in the private sector can expect, they are simply not going to pay out. There is no way the taxpayer can pay what is promised. Detroit was first, some the the states will follow, and the Federal Government will be last, but default is on the horizon due to this nonsense.

Going forward, all government employees need to be on a DC plan. DB plans are dead in the private sector for a reason. The idea that a muni/state/federal government cannot default is wrong, and they will.

May 08, 2014 at 10:45 am

KG-Most folks who work in the public sector do not have masters degrees and do not have to be overly compensated to be attracted to jobs, ie: DPW workers, public school teachers, police and firemen. I have a neighbor who is a public school teacher and she gets about 2.5 months of vacation time each year, makes over $50,000, and has a 457 deferred comp, and a pension worth about $1.5 million if she chooses option 1 and receives an income for the rest of her is that fair to those of us who fund it??? You are referring to the minority-

May 08, 2014 at 10:35 am

I agree with yankpack. Personal responsibility. and if you are a public employee, part of the employment agreement us the pension. These agreements need to be honored. If it is unsustainable, then future agreements need to be written with new employees.

May 08, 2014 at 10:24 am

Pensions help compensate public employees for lower salaries than similarly educated and credentialed workers would receive in the private sector. A worker with an advanced degree (esp. a masters or doctorate) would make a much higher salary in a private company than working for various government organizations. The only way to attract highly educated people to the public sector is to offer good pension and benefits packages to make up for the fact that they will have to work for lower salaries than their credentials warrant.

May 08, 2014 at 9:40 am

I agree with yankpack's point. Also, the Manhattan Institute "think tank" is very conservative Republican-leaning in its "thinking."

May 08, 2014 at 9:31 am

Mike: What all this boils down to is "pension envy". I get so sick and tired of this government pension bashing by the whiners. I now work as a consultant (MY choice). I have a nice 401k now, too. And, when I finally do retire at age 62, I will start pulling on Social Security. I planned for my future. The whiners opted for another route and are playing the "Whoa is me" game and pointing fingers at those that chose better than they did. Life is all about choices. YOU make a choice, you live with it.