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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 4:09 pm

That's the real crime - Congressmen & Senators who only have to serve one term and they have full health benefits and pensions for life. They should have to live on what we peons make. Maybe they'd be more empathetic to the concerns of everyday people.

May 08, 2014 at 3:58 pm

@ 50+, I have another 15-20 years to work in the private sector before I can retire. This includes 21 years Active/Reserve for Uncle Sam's military (BTW 19 yrs gets no pension) I don't know how many hundreds I'll collect per month @ age 60, but I do know it'll be <50% base pay of a E7 (<$2200). I contribute to a ROTH IRA. My employer contributes to a profit share pension plan. All said, I will never collect as much, for as long, in retirement as the Senator/Congressman that played in Washington D.C. part-time for 2 to 4 years. That is, most definitely, sour grapes.
Should the pension ever exceed full-time pay? Is there a minimum time required before any pension is available?

Tony Cokely
May 08, 2014 at 3:33 pm

Once the pension benefits are removed from the public sector workers will migrate away from the lower paying jobs without the promise of a pension. Public employers will no longer be able to attract qualified candidates for their jobs. You do not have to look any further than San Jose, California where this is already happening.

Paul Moskal
May 08, 2014 at 3:28 pm

I get a Pensions from the City of Chicago & Cook county. The thing is back in the 80 I know the city did this stopped putting their sheer in the fund to save money we weir told would put what is need at the time you go and would put me up weir would be safe . Look what happen I bet their is all fine . I think it be taken out of their pensions Let them see how it to live pay check to pay check and pay their owe health care like we do. I am sorry if I said it I have a bad way of coming across.
thank You

May 08, 2014 at 3:22 pm

I am a state government employee and will retire soon at age 62 with 20 years of service (I worked for 24 years in the private sector). I pay 6.25% of my salary into the pension fund. Many people don't know that the PA state legislature voted not to fund the pension for 10 YEARS!,and now they want the employees to pay for it. My counterparts in private industry make $25-30,000 more per year than I do. I chose to go into a state government job for the health benefits and the pension. And that's the choice - either higher pay, or pension and benefits. I chose the latter, so don't tell me now that you are going to take that away or reduce it. By the way, most people don't realize either that the average state pension is $25,000 per year. The average state worker is not getting rich off of pensions. Federal employees do make much higher salaries.

May 08, 2014 at 2:45 pm

All Public employees are thrown into the same Barrel not all pensions plans are the same I work in Virginia and my plan is based on my base pay I can not work more overtime or cash in my sick leave to increase my pension like some other state (most of those have Unions) When the stock market was doing good most people wanted a 401 K retirement where they were making a lot of money on their investment and should have been better off than the defined benefits pension but since the stock market went down they want to attack the ones that were loosing out when they were doing much better

May 08, 2014 at 2:04 pm

Sour grapes!
With 4 years in the regular Military, 26 years in the private sector with 6 years in my own business and 23 years with a municipality and no degree beyond life experience I can state my experience with facts. My job defined "where the rubber meets the road" in serving my City and its citizens and I earned my meager retirement and am painted with the same brush as you claim have a wealth of benefits. With wage ceilings and no profit sharing or so many other perks given to employees for the last 50 years all I can say is now that the private sector descends into chaos and enormous differences in incomes at the top of Corporations you now pick on those who have been steady servants of the public. $1,000.00 a month was taken away from my 30 year investment in Social Security because I had 23 years with a municipality. That will be a quarter million in 20 years of retirement that I was told I would get when I retired if I lived 20 years. Blame the government for squandering your tax money not the working servants. Same on you.

Alden Burnett
May 08, 2014 at 1:26 pm

This discussion is one-sided. I work in the private sector. My wife is a teacher (Special Ed, Early Childhood). She has been paying into the pension system (Illinois) for 25 years. She has been underpaid (finally reaching $60,000 / year after 25 years), overworked and after these years of excellent service has NO job security.

If the State had managed Her contributions like the Harvard Endowment, there would have been ZERO contribution required from State coffers.

The state owes her the benefit that is Constitutionally (Illinois)required. Will she pay more for health care? Sure. But to pull the rug from under her & other pensioners is unjust.

Truth be told, I am a little envious. But based on the promises and her contribution to a better society, we owe her this.

When looking at State pensioners pension income, remember also to see if the system allows the individual to access Social Security. Many do not. My wife will not be able to access Any Social Security benefit because she self-funded her pension.

Sean Kennedy
May 08, 2014 at 1:03 pm

Nancy, Defined Benefit plans depend upond a steady stream of customers for FOREVER to buy company products. When American Consumers by at $$ Tree, pensions go out the window.
For the Public Sector, it's the PUBLIC that gets bent over a barrel to pay for the benefits. It's Democrat legislatures that award these benefits to buy votes.

Sean Kennedy
May 08, 2014 at 12:57 pm

Any Public-Sector employees that feel they're underpaid should look to the private sector for a job. If you have an Education or Humanities or Social Sciences degree, you're still generally unqualified and add no value to business.