CIVIL SERVICE PENSIONS OFTEN SUPERIOR TO PRIVATE ONES
February 21, 2007
Pensions for civil servants often are superior to private pensions in subtle ways that make a huge financial difference, says USA Today.
For example, government pensions:
- Generally base benefits on a worker's top three earning years; private pensions typically base benefits on the top five years of pay, which lowers the average.
- Permit early retirement at age 50 or 55 with less of a benefit reduction than private pensions.
- Provide free or subsidized medical care for retirees under age 65 and supplemental coverage after that for those on Medicare.
- More often provide automatic cost-of-living increases to benefits.
Civil service pensions often let retirees add the value of overtime, unused leave and other benefits into the pension formula. The results can be extreme:
- Dover, N.H., Police Chief William Fenniman, 46, added more than $200,000 for severance, sick leave and other payouts into his three-year salary average when he retired in January.
- This will boost his retirement benefit to as much as $125,000 a year, more than he made as chief.
Baby boomer retirements will force governments to confront the rising costs of civil servant benefits. The U.S. government's unfunded retirement obligation grew $200 billion last year to $4.7 trillion. That's the amount the government would need today, set aside and earning investment returns, to pay for promised retirement benefits.
Before 1984, federal workers had a defined benefit plan and no Social Security. Today, new employees have Social Security and a pension that is part defined benefit plan (lifetime monthly payments) and part defined contribution (a lump sum at retirement).
Source: Dennis Cauchon, "More and more, retirees are finding that it pays to have worked for the government instead of the private sector," USA Today, February 21, 2007.
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