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Public pensions aren’t villains

By Jennie L. Phipps · Bankrate.com
Thursday, November 7, 2013
Posted: 6 pm ET

Where I live -- just south of Detroit -- whenever the topic of public pensions arises, the retirement planning conversation swerves to an angry discussion of undeserving retirees with astronomical pensions bleeding the public till.

The Detroit -- and the nationwide -- reality is nothing like that, with average pensions closer to $22,000 a year, according Alicia Munnell, director of the Center for Retirement Research at Boston College. But that number is a little misleading, too, because it includes part-timers and people who left their jobs years before they retired. Reality is somewhat higher, including some $100,000 pensions going to the likes of former high school principals and city police chiefs. Does anybody really begrudge them that kind of comfortable retirement? The bottom line, Munnell says, is that "people aren't getting rich off public pensions."

She and a team of others from the center just released an analysis that responds to allegations in the wake of the Detroit bankruptcy that numerous cities are going broke because of exceedingly high obligations to pay pensions to city workers and teachers. Her team concludes that the average city's overall pension debt represents about 7.9 percent of its total revenue base. Among a sampling of 173 cities, average costs ranged from 12.3 percent of total revenue at the high end to 2.7 percent of revenue at the low end.

"To hear people talk, you would think that it is 30 percent or 40 percent, but when you look at the actual amounts, it is far below that," Munnell says.

Among the cities studied, these are the 15 with the highest pension costs as a percentage of revenue:

  1. Little Rock, Ark., 17.6 percent
  2. Chicago, 17 percent
  3. Aurora, Ill., 16.4 percent
  4. Charleston, W. Va., 15.7 percent
  5. Reno, Nev., 15.5 percent
  6. Springfield, Mass., 15 percent
  7. Bakersfield, Calif., 14.5 percent
  8. Stockton, Calif., 14.1 percent
  9. Saginaw, Mich., 13.8 percent
  10. Portland, Ore., 13 percent
  11. New York City, 12.9 percent
  12. Santa Ana, Calif., 12.7 percent
  13. Fresno, Calif., 12.6 percent
  14. Cincinnati, Ohio, 12.5 percent
  15. Providence, R.I., 12.4 percent

For what it's worth, bankrupt Detroit is No. 61 on the list, with pension obligations that are only 7.1 percent of its total revenue. As Munnell says, "Pensions are an expense, but you can't use pensions to explain all problems."

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31 Comments
Mike
May 09, 2014 at 8:00 pm

The basic bottom line is that the pensions and other benefits were offered to attract the best public employees that they could, in order to compete with the private sector. A broken promise is a broken contract. The real reason that these benefits are being eliminated or reduced is a slew of foreign wars against an invisible enemy called fear, or OIL. It is the government budget supplying the war industry that is the problem. I could guess that Halliburton pensions are five, intact, and generous. They do the work of the devil.