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What’s fair for government workers

By Barbara Whelehan · Bankrate.com
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?

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37 Comments
Bill
November 23, 2012 at 5:26 pm

Why do people always bring out the stats from a few high paying jobs. There are hundred of thousands of city, state and federal workers in support rolls in low paying jobs. The high three doesn’t include overtime.

Jay
November 23, 2012 at 5:16 pm

The articles I read now-a-days are all about government entities (local, state, and federal) going broke because of over commitments to retiree benefits. 30% of some entity annual budgets are spent on retiree benefits. So the system must change to be more like private industry where the employer contributes to retirement benefits but the employee is responsible for managing the investment thereby taking responsibility for the outcome. Currently the taxpayers are expected to make up shortfalls in government programs.

Scott
November 23, 2012 at 4:36 pm

I worked 32 years for the fire department to get my pension and I paid 9% during those 32 years. While doing those years I also had to hold down 2 other part time jobs to make ends meet. Both of those part time jobs required that I pay in to Social Security but because I live and work in the wonderful State of Massachusetts I'm not allowed to collect more thaan 25% of the social security benefits I should be entitled to. You call that fair? Take it a step further: When I first started working those two extra jobs it was ok to collect from SS if you paid in to the system. But the govt. was allowed to unilaterally change the rules in mid stream. Again I'll ask is that fair?

ronw
November 23, 2012 at 4:23 pm

When columnist write about "government" workers they should be specific about federal vs state and local. The retirement systems are quite different. I am a retired federal worker who was under the old system where I contributed a % of my salary. I was not covered under social security, when I worked after retiring I did contribute to soc sec but if I had amassed the required number of retires to collect my govt pension would have been reduced by an equal amount, so my contribution to soc sec was just that, a contribution to the soc sec fund with no return for me. I am ok with that because as I understand it the soc sec was never meant to collect more money than you put in with interest, however today it seems most people feel it is a permanent annuity.

rich
November 23, 2012 at 3:52 pm

Give me a break, you are acting like they only work five years in their life. Funny you did not add in there that many only need work 20 yrs to get their pensions and then a lot of places add up their last five years and average it out for their pension. Cry me a river someone where else. They should all pay into SS like the rest of us. What was the average salary for the chicago teachers that went on strike? Around 77k and three months off to boot.

David
November 23, 2012 at 3:21 pm

I wonder what Billy Boulger gets from his brother Whitey for facilitating his escape from capture?

T Day
November 23, 2012 at 3:16 pm

No government worker, especially military and police and fire, should receive benefits not available to at least 75% of non-public sector employees. The vigor those uncivil employees apply to strike breaking would be severely moderated if they felt some sympathy for and connection to the 99%.

steve
November 23, 2012 at 3:07 pm

I worked in a private sector job for 22 years when I left it was with 16k to retire on from the company. That was when I was 42 years old. I'm now going to turn 61 in a month. At 42 I tested and was hired for a county firefighter job. I made a choice to change jobs. At my current job I now pay 8.9% of my wages into a state pension plan. We are not in the social security system. Each year that I work I get another 2% in my retirement. So if I retire at age 62 I will get 40% of my wages. No health benfits went I retire. I have been told that because I will get a state pension my social security will be 25% of what the yearly letter they send out says. So when you start getting upset with what public sector jobs pay and what you get in retirement think again we're not getting rich folks.

bob
November 23, 2012 at 3:04 pm

I read in the paper one day about a school principal that retired from his $300,000.00 a year job only to turn around and apply for the position he left vacant, and was hired because he was the most qualified applicant. Now he receives a 300,000.00 salary along with his pension.....give me a break!!

bob
November 23, 2012 at 3:01 pm

Massachusetts senate president Billy bulger receives a pension from the state in the amount of $198,000.00 annually...not bad !That doesnt include his pension from being president of UMass where he earned $300,000.00 a year salary