Public Pension Millionaires

March 27, 2014

Some state pension plans are creating retirement millionaires, says Andrew Biggs, a resident scholar at the American Enterprise Institute.

Public pension plan advocates routinely refer to public pensions as "modest." This is entirely false. The American Federation of State, County and Municipal Employees (AFSCME) claims that the average AFSCME member receives only $19,000 per year after a public service career, but that is simply not true. It is only by including short-term government employees that AFSCME can make such a claim.

Full-career public employees, on the other hand, receive incredibly generous pensions.

  • In Nevada, an average career retiree receives annual pension benefits up to $64,008. In Colorado that figure is $60,420 and in California, $61,560. Connecticut retirees receive $50,388. With the exception of Nevada and Colorado, these employees also receive Social Security benefits.
  • Some states are less generous -- Maine employees receive just $25,000 per year and Mississippi pensioners only $15,000.
  • The average state provides annual pension benefits for full-career retirees of $36,131.

But these figures only show so much, as states also have very different costs of living and some state employees do not receive Social Security benefits. To make a true comparison, Biggs took total retirement income (pension benefits as well as Social Security) for full-career state employees and compared it with the earnings of full-time employees in each state.

  • In the average state, the typical full-career government employee has a retirement income higher than 72 percent of full-time employees working in that state.
  • Oregon retirees topped the list, with the average retiree receiving benefits greater than the earnings of 90 percent of full-time employees in Oregon. West Virginia followed at 89 percent, and California and Nevada were both above 87 percent.
  • These figures may actually be conservative, as retirees may also be receiving interest or dividend income from personal savings. Additionally, most public retirees also receive health coverage.
  • Lastly, the cost of living for retirees tends to be lower than the cost of living for working age Americans.

Looking at the total benefits paid out to retirees over their retirement, many states actually create "pension millionaires" who earn over $1 million in retirement benefits. Alaska, California, Colorado, Connecticut, Nevada, Oregon, Pennsylvania and West Virginia do just that, and Rhode Island and Texas come close. The average career retiree receives a lifetime retirement benefit worth $768,940.

Source: Andrew G. Biggs, "Not So Modest: Pension Benefits for Full-Career State Government Employees," American Enterprise Institute, March 2014.

 

Browse more articles on Tax and Spending Issues