NCPA - National Center for Policy Analysis

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.

For text:

http://www.usatoday.com/printedition/news/20070221/pensiontension.art.htm 

 

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