Should A Public Employee Have A Yearly Pension Greater Than His Career Pension Contributions?

My answer would be absolutely not but unfortunately for us taxpayers 20,603 state retirees do have pensions greater than the total amount they contributed to their pensions when they worked.

How does that compare with the Social Security (SS) pension system? A Social Security recipient who worked from college graduation to age 62 (40 years) and was at the maximum Social Security salary contribution limit ($106,400) would have paid in about $140,000 for his share of SS. His max SS pension at that time would be about $22,000 or about 16% of his contribution. If he lived 24 more years (his life expectancy at age 62) he would end up with about $37,000/yr assuming a 2% CPI increase each year. That $37,000 at age 86 would represent about 26% of his contribution.

It turns out that 99.7% of state pension system retirees from age 50 to age 86 have pensions that exceed the 26% of contributions the maximum Social Security recipient receives at age 86. There is no comparison between Social Security and state pensions payouts since state pensions range from 4 times SS for the average pension (see here) to 8 times SS for a $130,000/yr music teacher pension (see here).

Ignore the constant whining coming from public employees about how much they contribute.

Egged on by union bosses, teachers and other public employees are being quoted in the media and writing letters to the editor complaining that the amount they pay into their pensions easily justifies the payments out, which as we have constantly shown is patently not true. Teachers are constantly quoted as paying 9.4% or even 10% (rounding up I guess) when we know the pension contribution now is 8% and anyone retiring in the next few years has averaged only about 7.2% slightly higher than SS 6.2%.

So ignore the strident claims and look at the actual dollar amounts paid in over their career. What you will see in every case is a pension payout far in excess of what is justified based upon the amounts contributed by the employees themselves. By comparing those employee contribution and payout amounts with Social Security contributions and payout amounts you get a true picture of the distortions in the current state systems.

So what I have done to illustrate the huge differential between what we peons pay into and get out of Social Security compared to state retirees is compare our prototypical 86 year old Social Security maximum recipient with 10 of the most egregious under-payers in each of the 5 state systems.

GARS – General Assembly Retirement System

Well, it should come as no surprise to anyone who has lived in IL for more than 24 hrs. that the most outrageous and costly examples of excessive pensions involve the politicians pension system. After all, thievery begins at home.

Note how the 86 year old with the meager $37,000 pension has contributed vastly more than every pol in this table yet they are the ones pulling down 6 figure pensions.

SERS – State Employee Retirement System

About 90% of SERS employees only pay 4% into their retirement system. This is obvious by looking at the huge pensions with very small contributions. Once again our 86 year old max. SS guy pays much more in and gets much less out.

Oh, and by the way, 96% of SERS retirees also get Social Security so add $25,000 to these numbers.

TRS – Teachers Retirement System

Compared to the politicians TRS members look reasonable. But not really. Who wouldn’t pay in $200,000 to their retirement system if they could get a $200,000 pension in their mid-fifties?

SURS – State University Retirement System

These are the big boys of the five state pension systems having all of the $300,000 plus pensions and most of the $200,000 plus. They have, in general contributed more than the other retirees but their pension are by far the most outrageous.

JRS – Judges Retirement System

Judges tend to be in the system fewer years than other members but still pull down substantial pensions. These top10 averaged about 25 years to get their large 6-figure pensions and two of them actually contributed less than our SS recipient.

Employee contributions are too low and need to be increased substantially.

This is an example of number 3 in my “Four Rules of Too.”

1. Salaries are too high.
2. Pensions are too high.
4. Retirement is too early.

The entire system is out of control and unsustainable. Massive reform is needed and soon.

We cannot afford to have public employees contributing less than Social Security recipients while at the same time receiving multiple times SS payments.

If Social Security is in big trouble with its modest payment schedule beginning at age 62, what kind of trouble are the IL pension systems in with its excessive 6-figure payouts beginning at age 50?

Bill Zettler is a free-lance writer and consultant specializing in public sector compensation.