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?
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