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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
Sharon
November 10, 2013 at 5:23 pm

Wow! A $350,000 DROP payment? My husband never got that and we don't get insurance either. My hubs paid into his pension for 25 years. He won't qualify for Social Security, even though he worked another job after retirement. For those who are criticizing public pensions, police in particular, things aren't always what they seem. And, what pension we do get, we paid into. My husband missed MANY holidays, birthday celebrations, etc. working to keep his town safe.

Clarence
November 10, 2013 at 4:05 pm

To the person that ths the police officer & firefighters on their block, you can take confort in the fact, that because of the stress related illneses, and cancers that come from those jobs, they will not live as long as you are going to, and cannot sell their buisness to fund their retirement. But you would begruge them their retirement, I guess should have become a firefighter or police officer. Whose kidding who?

JM
November 10, 2013 at 3:54 pm

Bob Wilson - W O W! you "know" they take home $80K a year pension? and they were "only" firemen and a policeman? Were they Chiefs? or just indians?

I too have a neighbor who is also a retired fireman, he worked 25 years in a firehouse, his pension is $46K and he paid 8.5% towards his pension matched by his employer. How do I know this? He told me - His total contributions to the pension over 25 years was over $290,000 @ 8.5% now add in the employers contribution and how long at 46K a year does he collect before he would exaust his $580K bank? and you say he's liberally ripping off the system??? Now there was no DROP payment for him (whatever that is) and YES he does play golf. But the difference for me is I actually saw him go inside a house that was on fire and put it out with his crew... So I have no problem at all with him collecting his pension for what he did for 25 years. Why Do You?

Maria Guerrero
November 10, 2013 at 3:40 pm

Private employers pay 7.65% in Soc. Sec./ Med taxes for their employees, who contribute an equal amount. Many public school teachers are not in the SS system, so this contribution is not made by either party - instead, they both contribute similar % to the pension funds. Actually, teachers pay closer to 9% of their salary to it.
If we did away with the pensions, the savings to public employers would not be that great, if at all. Although at least then states and cities couldn't give themselves "pension holidays" and play with the money in ways other than it was intended.

Bob Wilson
November 10, 2013 at 3:35 pm

Are you kidding me? Liberal public pensions are a tremendous rip off to all hard working tax payers. On my street alone, there are two retired firemen and one retired policeman. They all retired in their early fifties and are drawing pensions of over $80,000 a year guaranteed for life. They also received a one time "DROP" payment of $350,000 the day they retired. I am 63 years old, run my own business and have nothing guaranteed to me except social security and what I have saved. I anticipate needing to work until I am 70. It is all I can do to keep my mouth shut when I leave for work in the morning watching them walking their dog. When I return they are unloading their golf bag.

JM
November 10, 2013 at 3:21 pm

Dave - Unfair? Bad? where did you read those words here? Your slinging mud from the get go. Also does a person go to court without a lawyer? No because if he did he'd have a fool for a client. Unions are the bargaining agents for public employees & pensions are REQUIRED to be joined as a condition of employment, its a state law in my state.

Defined contribution plans aren't any worse or better than pensions depending on how they are written & offered. Do you really think the govt. "gives" anything away? That we're in cahoots with them? L O L...

Did you stop to think, what happens to my contributions made already if they switch plans? I lose the money because its already been spent by the legislature by law for those that retired before me. I lose everything and start over after 20 years? Dream on pal, dream on

Maybe you missed the part where I pointed out that private practice secretaries and laborers made on avg 18% MORE than I did for the years 1990-2010? That I had to give over 5% of my salary to the pension each year while the govt. let YOU skip payments to the pension? Which means you paid NOTHING for 20 years - NO TAX DOLLARS contributed to my pension... look it up!!!

Only the private citizens got a break because I still had to pay taxes and my pension part too. Can I have my 5% from you - you ingrate, I didn't think so.

Jim Blackstock
November 10, 2013 at 3:06 pm

I agree that in reasoned discussions, it is inappropriate to demonize either side. However, many, many public-employee pensions are defined benefit plans wherein the government agency promises a "guaranteed" payment regardless of how much was paid in or is presently actually available to pay benefits. So the problem is over-promising by public officials who have NO accountability or responsibility for the economic disasters those absurd promises often cause. If current tax revenues don't fund the pension benefit payment Ponzi scheme (using current cash flow to fund previous unfunded promises with no reasonable hope of matching current income to current obligations), then the whole arrangement must collapse. And in that case it is patently unfair to raise taxes to solve a problem honest taxpayers never caused! Jim B

Dave
November 10, 2013 at 2:58 pm

If these public pensions are so small, so unfair, bad because employees have to make payments to them, why is it then that public employees and their unions fight so hard against defined contributions plans like the rest of us are stuck with and fight so hard to keep these defined benefit plans? Must not be as bad as they all complain about. And pointing to CEO salaries are a favorite distraction of the left. Most of us in non-public jobs are not CEO's. We're struggling as much as anybody else. But we don't have nearly guaranteed jobs for life nor do we have defined benefit pension plans, but our tax dollars do go to support them.

Joan
November 10, 2013 at 2:29 pm

I also draw a public pension to which I contributed 4% of my salary every month, for 28 years, this was in addition to the required Social Security mandatory contribution. The 4% and Social Security was matched by my employer. I was able to participate in a 401K but any funds I contributed to the 401k were NOT matched by my employer. Discussions of public pensions never seem to mention the employees mandatory contributions to the retirement funds and they also fail to mention that these retirement funds are subject to market losses and gains just as 401K funds are. Stop looking at pension funds and start checking out CEO salaries,perks and retirement packages in the private sectors and do something about those salaries as a ratio to the ave employees salaries in the company.

Brenda
November 10, 2013 at 1:52 pm

I also draw a public pension. I paid into the account for 31 years, while also paying into Social Security. I paid 6+ percent of income into both. My employer also paid into both. The account is solvent. Employers often match 401k contributions. I fail to understand any difference. These complaints sound like another scheme to rob those who made honest contributions into retirement funds throughout their working lives. Why are these complaints viewed as honorable?