Retirement Blog

Finance Blogs » Retirement Blog » What’s fair for government workers

What’s fair for government workers

By Barbara Whelehan ·
Friday, November 23, 2012
Posted: 6 am ET

Many people begrudge government employees for the secure pensions they get after a lifetime of service as public workers. But many people don't realize that state and local workers in certain states don't contribute to Social Security, so their pensions are all they get.

"Fairness is a particularly important issue in states like California, Connecticut, Massachusetts, Illinois, Louisiana and Ohio, where one or more of the large retirement systems do not participate in Social Security," according to a new report from the Center for Retirement Research at Boston College. "With no Social Security and long vesting periods, short-service workers can leave with no benefits of any kind for their time spent in public employment."

That leaves a big retirement planning gap for those who spend a portion of their career in public service. Since Social Security benefits are based on the 35 highest-earning years after age 21, public workers who didn't pay into the system for a number of years but who are eligible for Social Security will get a reduced benefit amount when they reach retirement age.

Grass always looks greener elsewhere

The report finds that nearly half of government workers -- 47 percent -- leave their jobs with no promise of future benefits. It argues for the availability of defined contribution plans -- 401(k), 403(b) or 457 plans -- for public workers.

The current pension plan among state and local government workers requires tenure of a minimum of five years. Someone who works for five years beginning at age 35 as a middle school teacher, for example, will get just 6 percent of their pay when they retire. That may be enough to pay the bundled phone and cable bill at retirement, but not much more.

After 10 years, they get 14 percent of pay; after 15 years, 44 percent. Once you're in it's hard to leave, since the benefits only get richer as you invest more time at the job. If you don't like your line of work, you're stuck, serving a sort of prison term for the promise of that pension check.

Besides the requirement for long tenure to get vested, the benefits are back-loaded, meaning they're based on the three to five years of highest earnings, which generally occur at the end of a career. "An employee starting at 35 with a 30-year career will earn more than 30 percent of lifetime pension benefits in the last five years of employment," according to the report, which is titled "The impact of long vesting periods on state and local workers."

Government workers typically contribute 5.5 percent of their salary in these plans, according to the report. They should at the very least have the option to contribute to a defined contribution plan. But in those states where Social Security protections aren't in place, government workers should also have a choice of whether they wish to participate in the pension plan or in the Social Security system. That would seem more fair.

What do you think?


Follow me on Twitter: BWhelehan

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
November 30, 2012 at 4:22 pm

Too many government workers are just stooges - in it to be on the public dole, knowing how hard it is for them to be fired even when incompetence is involved. Sure they are exceptions where you have hard working, conscientious people putting forth their all, but the vast majority of governemnt stooges are leeches & losers.
So quit your griping & try getting a job in the real world rather than sucking on my tax money.

November 30, 2012 at 1:31 pm

Forget cushy pensions for federal government workers. As of the mid '80s retirement plans akin to private sector 401k plans kicked in. Employees who started after that time do not get large pensions as their predecessors do. Those employees contribute to their retirement plans just like private sector employees. If there is a layoff (and that's already happening), federal government workers get NO severance package or even a days notice.

November 30, 2012 at 1:28 pm

Most people have no idea what "government workers" do. We often do jobs that save the taxpayers money in the long run and that are invisible to others. Or they are oblivious to how government (and which government agencies) impact their lives every day.

I happen to work in corrections, where the (taxpayer) costs of incarcerating one person runs between $50,000-$100,000 per year. Community corrections (probation and parole) costs a fraction of that and has been proven to be more effective on the whole, but it is labor-intensive. And yes, we need support staff too(secretaries, IT departments, clerks and people to work in detention centers and jail.) So our DEPARTMENT has a large budget, but our salaries are not large. When our very competent secretary retired after 30+ years of service, she was making only about $30K per year. She gets a pension, AND she qualifies for food stamps-but won't take them. "Government workers" don't get to choose their clients, assignments or jobs. When I get a new file, I can't reject it because it will be too much work, it is in a dangerous neighborhood, the family is verbally abusive to me or because my chances of success are limited by factors out of my control. I introduce myself to the family and get to work. No, I do not feel sorry for myself. I still enjoy my job and get tremendous personal satisfaction from it, & yes, I plan to retire here. It's funny; most articles I have read about negotiating for improved compensation at a private-sector job suggest asking for "perks" that won't cost the employer much, like extra vacation, a flexible schedule,use of a company vehicle, and telecommuting privileges. Non-monetary and deferred compensations like good insurance and retirement plans/stock options have long been used to attract qualified candidates to jobs of all kind. But somehow when an employee works for the government such compensation is considered "greedy." Then why do I make less than half of what family members with less education make in the private sector? Because I work with people instead of things, and because most critics of government like to discount the groups of people I work with as being a drain on society.

Sure, there are some government employees who work in nice offices and get paid a lot of money, but the vast majority work in local capacities, with aging and outdated resources, get paid moderate wages and serve the public in a hundred ways. So the next time you check out a book or movie at the library for "free", sign up your kid for a sport at the park district, take a walk in the forest preserve, drive down a plowed highway after a snowstorm, or help your mom fill out those pesky Social Security forms, please take a moment to ponder who catalogs the books, maintains the facilities you use, or processes the check. Chances are, a very working/middle-class "government worker" who lives in and contributes to your community had a hand in it.

November 30, 2012 at 9:54 am

Why do people feel that government employees have such a great retirement package? As a federal employee, I contribute to my retirement just like when I was in private sector. We invest in a program that is similar to a 401K. President Reagan introduced this nearly thirty years ago. When in the military, it was a different scenario but look at the sacrifices of the service members of our Country. Yes, it is a volunteer force but how many people know about the sacrifices that the service member and family makes by being part of a great organization. The money is not great as enlisted and you still pay for health benefits but at a lower rate. Look up the retirement packages for the federal employees and then you will see that it is very similar to private industry for the standards set after 1984 for a majority of the civilians. Military is different and it should be with the sacrifices made.

Merle Grant
November 25, 2012 at 9:37 am

Do you hear Kaboom, Kaboom ? That is my
heart pumping for Government Workers. NOT!

November 23, 2012 at 9:44 pm

This is primarily in response to "Rich" Your delusional. First the average teacher has a Masters Degree - do you? secondly, The teaching of a child is one of the most important things in our society, yet you dismiss their importance. You are probably a parent that doe not take responsibility to also teach your child. Thirdly, a teacher that is earning $77,000.00 a year has more than 20 years of experience. Fourthly, I wish I did pay into Social security - it is not my choice not to. You need to reevaluate your priorities. Are sports figures worth millions of dollars per year??