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!
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.
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%”!