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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
Gregg
November 10, 2013 at 1:23 pm

Most public pensioners are not in the Social Security system, so a pension which they contributed to, is their only source of retirement income, other than what they themselves have saved.
If that same person earned the minimum 40 quarters (10 years) to qualify for Social Security, outside of their government job, they are heavily penalized in benefits for already receiving a government retirement check.
Does that seem fair after paying into both systems?

JM
November 10, 2013 at 1:09 pm

cnk - a pension requires an equal contribution from both the employee and the employer( yeah just like most 401k's). I am forever amazed that people think the politicians "gave" the average govt. worker anything. In my field of work there is no equivalent private sector. Yet the govt lumped us in with secretaries and general laborers. Do you "know" that from 1990 through 2010 private workers in that category made on average 18% more in pay than we did? Or that even though I'm a taxpayer too, the govt. was allowed to skip thier payments to the pension for those 20 years? Did I get a benefit from that? No only private citizens got the benefit, BECAUSE I still had to make my payment to the pension every pay!!! Now the Pension is underfunded because the politicians got away by "cooking the books" which created the shortage they began blaming on us 5 years ago.

Go look up the 60 minutes article on private pensions from the 90's and see how the private companies stole the money and dumped millions of people onto the Fed Pension guarantee corp... just like your bank, but for pensions - remember Enron? high profile losses misappropriated funds and every regular guy lost thier stock and pension because of the few rich that walked away with MILLIONS even after the verdicts? The point here is the pols have done the same thing from the bully pulpit - and you fell for it! Get educated about generally accepted accounting principals (GAAP) and see why their there, then look at your state budget. It will never match... and you blame the workers!

Al Newbeck
November 10, 2013 at 12:50 pm

How come nobody ever says anything about the 9.4 percent of my wages that I paid into my pension?

Ed Bread
November 10, 2013 at 12:49 pm

South of Detroit??--do you mean Windsor, Ontario, Canada??
Nobody describes anywhere in Michigan as "South of Detroit"

Tracey
November 10, 2013 at 12:48 pm

I want to thank you for looking into this subject.

What I really want to know is the percentages back in 1970, 1980, 1990, and 2000 when all the public pensions started to climb.

Also, how can we defend a system where the people approving these pensions are the very people who benefit the most. ( Fox guarding hen house )

?????

cnk
November 10, 2013 at 12:45 pm

i don't think it would be asking too much that public servant workers be treated the same as average american worker. wages and benefit packages should should mirror that of the AVERAGE american worker. should fund your own 401k like the rest of us!

Jim
November 10, 2013 at 12:45 pm

and Robert.. stop your generalizing.. you don't know jack about any pension plan but your own.. you missed the mark by not knowing anything about the topic.. when you do.. then be specific.. ponzi scheme? LOL yeah/

Bob
November 10, 2013 at 12:43 pm

As a former county employee I have been drawing my retirement for 11 years. Each year I get an accounting statement from the retirement board. We have NEVER been in the red! In years where the county investments exceed the retirement payments those funds are kept within the system. The investments funds are from the employee and employer contributions. No additional public funds are used. I pay 100% of my Medical insurance. Pension funds run correctly and above board are a great benefit to bring good people into public service. Unfortunately many funds have been systematically raided by unions and corrupt politicians over the years and now require additional revenues to meet payments. Ours does not.

artist
November 09, 2013 at 9:50 am

I can and will start collecting my public pension at age 50, for life.

And if I die first, my wife will collect it for the rest of her life.

Robert
November 08, 2013 at 5:08 pm

You missed the mark completely, so stop trying to explain to people that pensions aren't bad. If it were only 10-20 people receiving the public pensions, the general populace wouldn't have a problem with them...but you have to consider, and you've left out, how many hard working people are drawing a pension that makes the entire pension system just a legalized ponzi scheme. There are so many people drawing a "small percentage" from the pot that it's impossible to keep the principal pension bank account solvent.