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Do you have pension envy?

By Barbara Whelehan · Bankrate.com
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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11 Comments
JK Peterson
May 26, 2011 at 2:49 pm

Barbara:

Some points to consider. My recollection is that one of the principal reasons the old CSRS retirement system was 'reformed' into the FERS retirement system was the substantial 'unfunded liability' issue - which still is high but not growing much as no new employees are joining system and existing CSRS retirees die off. The liability under CSRS was (is) generated because the government agencies were not required to contribute enough into the retirement system, just passing the extra costs on to the Federal budget effectively under the table. From the Cong. Research Service report you have cited, it is very clear that FERS has largely been successful in being a fully funded retirement system -- you can argue that contributions are askew but compared to nearly all state and local and many private retirement systems, with FERS there isn't an 800 pound gorilla hiding the in the woodwork for the taxpayers to fund in the future. The current estimate on unfunded liability for the 27 year old FERS system ($0.9 B) which now covers 1.6 million employees, adds up to about $600/member.

Oh! And a comment on all of those that commented that UPS, FedEx, DHL could do the Post Office's job better & cheaper. Those private sector firms want nothing whatsoever to do with having to maintain the standards of delivery that USPS must adhere to by law. -- making deliveries 6 days a week to every single address in the United States for 3rd class, 1st class,junk mail, and etc. They make a living with the very lucrative over-night delivery and high volume, high weight freight businesses.

skshrews
May 20, 2011 at 8:31 pm

I don't have a pension and my excessive taxes pay for a generous pension for public employees-that's the basis of "Appropriately Placed Fury".

Barbara Whelehan
May 08, 2011 at 9:31 am

When a person makes a mistake in judgment, he or she could acknowledge it or pretend it never happened.

bourneblogger
May 08, 2011 at 9:04 am

You shouldn't go back on your original word. Once you start compromising your thoughts, you're a candidate for mediocrity.

BHL-57
May 04, 2011 at 11:53 am

AMR 1960, The point of the article is that your anger is misplaced. The pensions of federal workers is what they have earned over the years. The point is that private industry has walked away from their obligation to their rank and file workers while enriching their "executives."

Who do you think got Osama ?

jbfalaska@yahoo.com
May 01, 2011 at 6:18 pm

Anyone who voted Republican and for the bank bailout deserves what they get - nothing. While the CEOs rake in 100 times the average employee salary - AS A PENSION. Blame yourselves.

Jim Cap
May 01, 2011 at 6:11 pm

Now that's the pension I want: $6.5 million per year!

Woo Hoo! What a sweetheart deal...if YOU'RE the one getting it!

This is the type of news that should make everyone angry; not the public employee who gets $20K to $60K a year in retirement after contributing, out of his or her labor, year after year, decade after decade.

It's in the interest of certain people---like the very small class that gets pension payments worth millions ever year---to shift our attention from facts like this and try to divide the rest of us, turning working person against working person.

The Elitists that make millions in pension payouts would like nothing better than for the rest of us "little people" to hate and distrust each other, while they toss us some crumbs from the table and snicker behind our backs and we fight each other for them.

Why aren't ALL pensions---public and private---revealed for we the public to see? Are these greedheads making millions every year trying to hide something?

AMR 1960
April 27, 2011 at 6:50 pm

I don't suffer from "Pension Envy" What I & Tens of millions in the Public Sector suffer from is: OVER TAXATION!

Our anger is Justified...

John Hedtke
April 14, 2011 at 8:49 pm

I agree with Marqui Sander on this: the FERS pension pays--very roughly--at the same rate as Social Security payouts. Not to be sneezed at, of course, but it's not the be-all and end-all of pensions by any stretch.

Marqui Sander
April 13, 2011 at 11:13 pm

Thanks for the update and corrections. From my calculations, the FERS pension comes out to be roughly equal to what you would expect from Social Security, about $2000 a month from each. The 401(k) is subject to market fluctations so everyone is in the same boat there, although many companies did stop their matching contributions during the economic downturn. Still I suppose that is better than getting laid off.