BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Mud-Slinging Over Public Employee Retirement Benefits

Following
This article is more than 8 years old.

Many public employees retire as "public pension millionaires." In 5 states, average full-career employee receives more in retirement than when working.

The Los Angeles Times columnist Michael Hiltzik takes rather heated issue with my study showing that many public employees retire as “pension millionaires.” But with Hiltzik, “taking issue” generally means the flinging of random semi-factual claims combined with accusations of personal wrong-doing. His most recent piece is no exception.

In my study, I showed that in eight states the average full-career state government employee would receive over $1 million in pension benefits over the course of their retirement. In 23 states, lifetime benefits topped $750,000. On top of that, most public employees receive Social Security. In the average state, a full-career employee receives a total retirement income equal to 87% of his final earnings, well above the 70% figure that the Social Security Administration states is generally adequate. In five states, and average full-career state government employee would receive more in retirement than when he was working.

Hiltzik is from California, so the debate focuses on benefits under the California Public Employee Retirement System (CalPERS), but it could apply to pretty much any state or local government plan.

Hiltzik makes three main objections, all of them wrong.

First, Hiltzik claims that it’s misleading for me to analyze benefits paid to full-career public employees, because most public employees don’t work a full career in government. But most private sector employees do work a full career and they know how much they can expect to receive in retirement. By comparing their own retirement incomes to what a full-career government employee in their state receives, they can gauge the generosity of public pension benefits. Another way to handle the question is to compare annual benefit accruals in public pension plans to the amount that private employers contribute to their employees’ 401(k) accounts each year. This approach tells the same story: that public employee pensions are much, much more generous than private plans.

What you don’t want to do is exactly what Hiltzik – and elsewhere, CalSTRS chairman Jack Ehnes – do: cite the benefits paid to the average retiree, who worked only a partial career for government, and conclude that these lower benefits must be modest. Hiltzik notes that “the average length of service for a [California] state retiree is just under 20 years. The average annual benefit comes to between $32,800 and $36,000.” So, after roughly half a working career, a typical California state employee receives around $30,000 per year in pension benefits. Plus Social Security, which I’d guess is another $10,000. Is Hiltzik claiming this isn’t a good deal?

Second, Hiltzik complains that in my calculations of total retirement, I include Social Security benefits for California state government employees. But, Hiltzik complains, “CalPERS says that 40% of its members don't receive Social Security.” But as CalPERS itself points out, the largest groups of employees not covered by Social Security are teachers (who are covered by CalSTRS and thus not in my study) and public safety officers, who I exclude by analyzing “regular” government pensions rather than public safety benefits. Hiltzik himself notes that I exclude public safety officers and he should know that public safety are the main non-covered California employees enrolled in CalPERS. Again: swing and a miss by Hiltzik.

Third, Hiltzik complains that I calculated the present value of public employee’s lifetime retirement benefits, which results in many public retirees being “pension millionaires.” Hiltzik writes, “We'll do Biggs the courtesy of not presuming that he intends these scary figures to mislead, although it's hard to think of any other reason to use them.” Hey, thanks! And pretty soon I’ll stop beating my wife! In reality, what these present value figures represent is the amount a private sector worker would need to have saved in his 401(k) in order to generate the same lifetime retirements benefits as a full-career state government employee. Given that most of us today have 401(k)s and we have a rough idea of what our balances are, it’s not unmeaningful to point out, say, that you’d need a balance of about $1.2 million at retirement age to have the same retirement income as the average full-career California state government employee. If there’s a more intuitive way to express it, I don’t know.

Hiltzik needs to do a lot more fact-checking before he starts throwing mud.