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Do you have pension envy?

By Barbara Whelehan ·
Friday, April 8, 2011
Posted: 3 pm ET

My recent post about federal pension benefits sparked some heated comments from public and private sector workers. It's a good thing we weren't all in the same room or a riot may have ensued! Some of you made excellent observations, but I was chagrined at the level of hostility displayed by other contributors.

Some folks were irked by my statement that federal workers don't have to do any retirement planning compared to those in the private sector. In retrospect, I was flippant and regret writing that. It's true that federal employees get excellent benefits, better than most, but it behooves them to take full advantage of their Thrift Savings Plan to ensure a comfortable retirement. So yes, public workers need to carefully plan their retirements to maximize their benefits.

A few of you disputed the figures I'd gleaned from the CRS Report for Congress titled "Retirement Benefits for Members of Congress." I stated that in the Federal Employees Retirement System, known as FERS, government employees contribute 0.8 percent of pay while their employing agencies put in 11 percent of pay, though that varies from year to year.

Since that report was issued, the federal contribution level has actually increased slightly. According to the Congressional Research Service's report titled, "Federal Employees' Retirement System: Benefits and Financing," the federal government now contributes 11.7 percent of pay, while employees still contribute 0.8 percent. This accrual rate of pension benefits won't be found on paycheck stubs.

Skeptical? See the summary of federal benefits on page 2 of the report. (Incidentally, that report is worth reading in its entirety.)

Misplaced fury

Last but not least, some of you shrewdly pointed out that people in the private sector are misdirecting their anger. It's not the fault of government employees that companies in the private sector have moved away from offering pensions to their employees.

That's oh so true. Moreover, in some exclusive private sector circles, pensions are quite generous. I wrote about this phenomenon five years ago in an article called "A tale of two pension plans: regular vs. CEO," back when executive pension information was difficult to obtain. Professor Lucian Bebchuk, a corporate governance expert and professor of law at Harvard Law School, testified before Congress back in September 2006 about the lack of transparency surrounding executive pension benefits. This potentially hurt shareholders who, without this information, couldn't accurately conduct an analysis of a company's financial statements.

We're talking about pension benefits worth millions of dollars. In a study by Bebchuk and co-author Robert J. Jackson Jr., the pension benefit of a former CEO of a large pharmaceutical company was estimated to be worth $6.5 million per year through his retirement. The actuarial benefit -- the amount needed to fund the entire retirement -- was calculated to be worth somewhere between $71.5 million and $83 million, depending on his marital status.

If you suffer from pension envy, here's where it could rightfully be directed.

Nowadays you can find information about executive pensions on the Securities and Exchange Commission's website. Scroll down to Filings & Forms, click on "Search for Company Filings," enter the ticker symbol of your company of choice, and look for proxy materials. (These filings are called DEF 14A.) Look up the pension benefits, generally under "executive compensation."

While this information may be more open now, executive compensation is still embroiled in controversy. Recently, the Securities and Exchange Commission proposed new rules to increase scrutiny of pay arrangements decided by consultants with possible conflicts of interest, such as potential business dealings with the executives whose pay they influence.

Round and round we go. Meanwhile, you and I are dollar-cost-averaging into our respective 401(k), 403(b) or 457 plans, hoping we might be able to save enough money for our own retirement.


Check out Bankrate's Retirement Realities series. We'll be adding stories to it throughout the year. Follow me on Twitter: BWhelehan

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June 06, 2011 at 11:32 pm

The FERS federal pension is not great. It's only 1% a year, so for simple math if you average 100k a year (which most don't) for 30 years, your pension is only 30K a year. Definitely can't retire on that, escepially 30 years from now. It's nice and helps, but is not the end all for retirement. Federal employees also take significant pay cuts coming form the private sector as well so it's all a wash in the end.