Editor’s note: Bill Zettler wrote the following in late 2005, and his work was picked up by both the Heartland Institute and the National Center for Policy Analysis. Four and a half years later the country has finally awakened to the problem of over-promising public sector pensions.
By Bill Zettler
Give ’em a million, save a billion. That is my answer to those who are urging all of us to call Springfield and let them know how upset we are that they are not raising our taxes by $320 billion (or $8 billion a year for the next 40 years) to make millionaires out of public employees when they retire at age 55.
It would be funny if it weren’t so outrageous. Only the teacher unions and their minions would think that taxing non-schoolteachers into bankruptcy (or more likely into a low-tax state) is fair and reasonable.
My new slogan “Give ’em a million and save a billion” comes from a simple mathematical fact. The average teacher in Illinois who retires after 34 years retires with a pension worth well in excess of a million dollars cash. So if we taxpayers just give them a check for $1 million when they retire (whatever happened to a gold watch?) we will save tens or hundreds of billions over the next 40 years.
This is easy to figure out just go to any mutual fund site such as http://www.www.vanguard.com and have them calculate an annuity for you indexed for inflation starting at age 55. When you do that you see that a beginning pension of $40,000/year requires an up-front payment of $1 million.
Thus the $103,000 pension for the highest paid teacher in 2004, a driver’s ed teacher from Leyden High School is worth about $2.5 million cash up front. So giving him $1 million would save us $1.5 million and still make him a millionaire.
He is not alone – the 100th highest paid teacher would have a pension cash-value of about $2 million. Suffice it to say that there are no teachers in the six-county metro area retiring at age 55 after 34 years that are retiring on pensions less than $1.25 million. Most of them are close to the $2 million mark. If they are administrators the $3 million mark is not unusual.
And the teachers’ 8-percent contribution over 34 years compounded at 6 percent adds up to about 15 percent of their pension. The other 85 percent comes right out of the taxpayers’ pocket. Which also means we taxpayers as employers are contributing about 40 percent of the teacher’s salary to their pension plan. How’s that compare to your company’s 401(k) contribution?
And the driver’s ed teacher is not the worst example. Bill Clinton’s presidential pension is about $162,000 per year. Here in Illinois we have 29 former public employees with pensions greater than the president’s.
So, yes, Mr. Heide we do need pension reform in Illinois. We need to have an upper limit on public pensions that relate in some way to the average pension non-public employee’s receive. Otherwise in 40 years there will he no one left in Illinois except retired public employees. Who is going to pick up the tab then?
Bill Zettler is a free-lance writer and consultant specializing in public sector compensation.