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Public pensions lucrative compared to private pensions

A Wall Street Journal article, “Why Public Pensions Are So Rich,” uses the Illinois Teacher’s Retirement System (TRS) as its example of generous “defined benefit” plans that guarantee benefits regardless of how the plan’s investments perform versus the “defined contribution” 401K-type plan of most private sector workers, which does not guarantee a specific pension benefit.

TRS officials state that since Illinois teachers do not participate in Social Security, then the average teacher’s pension of $43,000 isn’t too generous. What officials fail to mention is that their pension calculations average in pensions of employees who retired years or decades ago, as well as part time employees.

The average teacher who retires today, after 30 to 34 years of service, had final earnings of $84,466 with a pension of $60,756 a year, plus COLAs, a life time value of $1.6M from age 62,  plus health care benefits worth up to thousands per year, providing an income higher than 95% of retirees in Illinois!

Excerpt:

Compared to this, how would a private-sector worker’s retirement plan stack up? Private-sector workers typically rely on a combination of Social Security and a 401(k). If the private employee had the same $84,466 final earnings as that veteran teacher, Social Security would pay around $17,750 per year. The remaining $43,000 has to come from elsewhere.

Private employer’s contribution of 6% of 401K contributions average $3850 per year in retirement and to replicate the public employees guaranteed benefits, a worker with a 401K would have to invest in safe but low interest Treasuries.

Excerpt:

To make up the rest, a private worker would need to save an almost implausible 45% of his salary for retirement! Compare that to the 9.4% of salary that Illinois teachers must contribute toward their pension plan. Many Illinois teachers pay even less because their school districts “pick up” all or part of the 9.4%.

When are we, as taxpayers, going to stand up against public pensions that are more lucrative than 95% of the private employees, who pay the public employees pensions? This was the main reason for the 67% increase in Illinois state income taxes last year – most went to pensions or borrowing for pensions!

Let’s Occupy Springfield, BTW, “We are the 95%”!

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12 Comments

  1. Yet they whine about paying a small fraction more towards their pot of gold. Cry me a river. No wonder the State is broke. Can’t wait for someone to foolishly try to defend this!

  2. You left out one important detail. Given the high education level of teachers and other public-sector professional employees, the average salary at retirement for private-sector jobs is likely to be greater than $120,000/year. This means that they can easily save a significant amount of money toward retirement.

    Somehow you always forget that public-sector employees take low salaries in exchange for the security of a retirement pension. Lawyers who choose to become legislators get a salary that is less than 1/3 of the salary of lawyers in private practice. If you continue to lower these already low salaries you will never be able to attract the high level of passion and intelligence that the State benefits from when great people choose public service over private profit.

  3. NAVYFLYER10

    There is only one solution. Every American goes on the same retirement system. That means ALL politicians, ALL government workers and ALL private sector employees. There is only one exceptio. Those who made a career in the military deserve their current pension system as they sacrificed either through injuries or through years of separation from their families. No other group made this type of sacrifice! And before someone goes off on me for looking out for my self interests, I did not make the military a cereer and thus do not have this pension.

    So this means that ALL participate in social security, all in 401k type programs with no lateyear bumps in salary and no matching for the public sector that exceeds the average ofthe private sector. It also means that all participate in the same medicarfe and medicaid system.

  4. Sorry, coprof, your statements are simply not true. There is no gap in salaries for the huge gap in benefits to make up. That’s true even adjusted for job responsibilities. Economist Mike Mandel (of the Progressive Policy Institute) explains in this article:

    http://innovationandgrowth.wordpress.com/2010/03/23/the-growing-gap-between-govt-and-private-sector-benefits/

    The PPI and Mandel are hardly conservatives, to put it mildly.

    The relationship between public employees and taxpayers has become master-serf over the past decade. While voters in other states are finally beginning to wake up and make changes, that is highly unlikely in Illinois. Voters here seem to be very happy with the status quo and that’s exactly what they are going to get. Until, that is, people are no longer willing to lend the state money. And that day is coming as the state’s debt continues to be downgraded.
    As far as state legislators are concerned-there are many states in this country that still abide by the ideas the country was founded on. Their legislators are part time and only make a few thousand dollars per year with no benefits. And those same states are the ones who pay their bills on time. The basketcases are states like Illinois and California, where there is no expectation that legislators will have to live in the real world and make a living like their constituents do.
    Public service? Passion and Intelligence? I’m sorry but I don’t see much of either in the Illinois legislature.

  5. Coprof sez : “Somehow you always forget that public-sector employees take low salaries in exchange for the security of a retirement pension. Lawyers who choose to become legislators get a salary that is less than 1/3 of the salary of lawyers in private practice.

    The key word is “choose”. No one forces them into public-sector jobs, or politics.

    As to public-sector salaries being lower than private, see the following:

    Several analyses of average wages and benefits in the public and private sectors reveal that state and local government workers earn more than private sector workers. According to the most recent Employer Costs for Employee Compensation survey from the U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers-a difference of over 44 percent. This includes 35 percent higher wages and nearly 69 percent greater benefits.

    Read the rest at: http://reason.org/news/show/public-sector-private-sector-salary

  6. navyflyer10: Why, that sounds like “socialism” to me. Have everyone on the same plan? Of course I am being sarcastic.

    Funny how the Wall Street Journal picked the most generous pension. The majority of public employees who are retired are lucky to have enough of a pension to live on. By the way, public employees are not allowed to have a 401(k) plan. The legislature keeps talking about a 401(k) plan becoming an option, but see how far they have gotten? nowhere.

  7. Everyone is hit by some form of retirement or lack thereof….those that have it and those that don’t but pay for it so others can have it.

    There is so much unjust “pension, retirement, social security retirement” plans ~ it’s enough to drive a sane person balistic!

    Plans have before/after tax contributions; percentage vested for yearly service; no vesting until after certain number of years; SS benefits are only collected on one when married and I’m sure there are many more variables as in this stream about teachers & public officials.

    Much of the problem solving would be just a matter of common sense. Implementing the changes is the challenge.

    Look at basic SS retirement ~ why are disabled getting benefits that they never paid into or that no one periodically checks to be sure disability income is still necessary? Why can’t a married couple that have worked 30-40 yrs both collect what they have paid in? Worse yet, the one collecting dies and the surviving spouse only gets half!!!! If you choose to work your benefits are reduced by those earnings…..who can survive on SS retirement alone these days? Earning $48K a year and retirement cuts the income down to half or less!!! The icing is that what little you do get you pay income tax on…….

    Teachers & public positions should have a 7 to 10 year vesting period before benefits begin to accrue. At least in the public sector, this would make the individual serve at lease two or 3 terms before being able to accrue benefits.

    As it is now there are too many people with their hands in the perverbial cookie jar and they are not about to give up any part of it, regardless of the cost to “others”.

    A company I worked for submitted about $10k per year for my “pension”. It required 5 years vesting before benefits start to accrue. Work 4 years and you get nothing and the company cannot re-distribute the funds or get a refund. It is a system where the workers pay for those that have retired ~ an unsound progression. If you make the vesting time and nothing more at retirement age you’re entitled to a whopping $300 a month. A far cry from the $50K that was paid in on your behalf.

    Solution to SS retirement ~ what you pay goes to a fund for you alone ~ untouched. The employer portion can cover the rest. Guaranteed, if I would have all the SS money I paid in a small interest baring account, I’d be no burden upon my retirement. However, administratively my method would put many out of work.

    I agree with Navy Flyer one pension for all….but then who delegates what a fair pension amount would be? Someone who earned $30K/yr should not be entitled to the same pension amount as the one who earned $50K/yr. The only ones who should get two pensions are the Armed Services and perhaps other life threatening positions.

    Sad part is ~ no one will step up to clean up this obvious mess.

    • Ted Biondo

      Welcome to the blog Angie. Many great and factual points. It’s refreshing to know there are some out there who get it!

  8. JRM_CommonSense

    Ted, maybe you could also point out where Angie is not so factual and obviously does not know much about Social Security.

  9. Pray tell ~ JRM ~ what am I missing with SS? I have dealt with my parents getting SS and the fact that they could only collect on one, even though both worked….the fact that every increase that they got was offset by an increase in Medicare (which, btw, was ususally higher than the increased income). Fact, when my father died, my mother’s benefits were reduced to what a dog couldn’t survive on, let alone a human!

    SS disabilities are paid to children of parents who worked.(?) This can be indefinite in some cases. A parent dies and SS pays $$ to their children. I feel that SS was designed to take care of the employee when he/she no longer works and/or is retired. The problem comes in when payouts are made to those that have not paid in and/or never will. It doesn’t take a rocket scientist to understand that paying out for two, three, four or more when only one paid in is a ratio set to fail.

    I owned rental property and had a tenant that was collecting SS disability with no aparent disability to warrant his collection. A phone call to SS only resulted in “too busy to be checking and updating information on every case”.

    I’m not going on hear say. I wouldn’t post, if I wasn’t sure of what I was talking about. Unfortunately, knowledge is not power in this case ~ only frustration!

    • Ted Biondo

      Sorry JRM, I don’t see anything wrong with Angie’s reasoning on Social Security. SS is becoming another welfare program and will reach its full potential when SS starts means testing to remove those that the “government” deems already have enough. SS is just a shawdow of what it was intended to do – which was for retirement only – today, its a potpourri of give away programs.

      I would like you to tell us all where Angie is not factual, maybe I missed something. I’ll respond honestly. Promise!

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