‘Average’ State Pensions Are Far Above Average (Part 1)

How much pension should be paid to part-time employees with partial careers?

Part 1 of 2: Teachers lead the offensive against pension reform.

The public relations offensive by the IEA (Illinois Education Association) and other public unions is in full force here in Illinois. Virtually every day letters to the editors and op ed pieces regale the public with arguments suggesting average pensions of state workers as being “modest” and reasonable. Only the forces of darkness (like championnews.net for example) could propose cuts to what these public servants have “earned.”

Like most public pronouncements by the IEA these tend to be disingenuous at best and outright deceitful at worst.

The “average” retired teacher is a part-time employee with a part-time career.

Let’s review the basics regarding teachers vs. private sector employees:

1. Teachers work 170 days or 34 weeks a year or less.

This is calculated off of the standard teachers’ contract that calls for 182 workdays per year. Subtract from that number at least 12 days for sick days and personal days per year and you come up with 170 days or 34 weeks a year in the classroom. The sick days are subtracted because if they are not used they are available as time-worked credit when they retire. And the time-worked credit at retirement is worth a lot more because it is based upon the final year’s salary rather than the first year’s salary.

In contrast the average private sector worker works 235 days or 47 weeks a year. This is based upon 260 days (52 weeks of 5 days) less an average 13 days vacation, 8 holidays and 4 personal/sick days.

I think it is safe to say most people working 235 days per year would consider a 170-day work year to be part time employment.

2. For private sector employees with college degrees a career that begins when you are 22 would typically end at its earliest after 40 years at age 62 or more likely after 44 years at age 66.

Age 62 would be with early Social Security and age 66 would be with full benefits. Very few would be able to afford to retire prior to age 62 if then.

For teachers on the other hand – less than 1% work 40 or more years before they retire and the average works only 25 years. In fact 90% of TRS retirees have worked less than 35 years, a full 5 years less than what most people consider a full career.

Twenty-five years is not a full career nor are 170 days a full time job. So the IEA’s “average” is not the same thing that we private sector workers consider “average”.

3. Teachers do not pay 9.4% for their pensions; they have paid on average 7.2%.

If you listen to the unions and read editorials and letters-to-the-editor you will hear this constant complaint: teachers pay 9.4% for their pensions which is a lot more than private sector employees pay. While it is true teachers have 9.4% of their pay deducted from their pay and sent to TRS only 7.5% is used to calculate their pension and prior to 1998 it was 7%. So a teacher with 35 years has paid, on average, about 7.2% for their pension over his career.

Here’s the breakdown:

7.5% pension (7% prior to 1998)
0.5% annual 3% COLA (only since 1998)
0.4% Early Retirement Option (only since 2004 and refundable)
1.0% survivor benefits basically a life insurance policy (refundable).

The Early Retirement Option and the survivor benefit contribution are both refundable at retirement for those who do not want them. In 2010 76% of retirees received refunds of one or both of these non-pension contributions.

Pensions four to seven times Social Security are not “modest”.

The ultimate test for “average” pension would be in comparison to most people’s pension plan – Social Security. So what does the TRS “average” pension look like if that same person retired on the “average” pension the 95% of us who are not eligible for the state pension systems rely on? That pension system is Social Security.

Here are the stats for the “average” retired teacher:
1. Average TRS pension – $46,000.
2. Average age at retirement – 58.
3. Average years worked – 25.
4. Average salary final year $61,000.

The Social Security calculation is a little complicated but basically it is a progressive one whereby those with the least incomes (about $8,000/yr) get a higher percentage of that income (90%) and the percentage decreases as incomes go up ending with 15% of income above about $50,000/yr. The maximum Social Security at age 62 is $22,000 and at age 66 about $28,000. And by the way to get max Social Security you need to work at least 35 years which as we know 90% of teachers do not do.

So once the Social Security math is done, using the “average” teacher pension values given above (1 thru 4), we find that the “average” TRS retiree would be receiving about $12,000/yr at age 62 rather than $46,000 at age 58. Since the “average” teacher retires four years earlier than the age 62 minimum for Social Security the value of his pension is more than 4 times the value if he was on Social Security.

If all teachers pension were limited to 2 times Social Security there would be a pension surplus not deficit.

Some teachers get more than 7 times Social Security.
If we look at our infamous Music teacher who retired after 33 years of work at age 54 with a beginning pension of $130,000, we have a cash value of about $3 million. If he retired at age 62 on the max Social Security of $22,000 his cash value would be about $400,000. So though he contributed 7.2% to his pension for his $130,000 starting pension he actually contributed less than his self-employed peer in the private sector paid for his $22,000 Social Security pension.

So contribute less get 7 times more.

Only someone with their foot on the throat of the political class could suggest that 4 to 7 times Social Security is “modest”.

In Part 2 of this 2 part series we look at the other four state pensions systems and compare them with Social Security and the TRS (Teachers Retirement System).

Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this mail address.

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