We've all heard how pensions are ruining America (free lunches, government handouts, etc. etc.). What is really the truth about this? Pensions are a heavy burden on local and national government. This much is true. But do federal and state pensions really pay retirees more than they made while working?
Mark Butler investigated this in his article "The Truth Behind the Federal Pension Myth". Butler writes that the truth is that pensioners are really getting much more than a subsistence income, that will need to be subsidized by Social Security and/or working.
With the current public sentiment running counter to what is taking place in Washington DC it is no small wonder that another group of individuals is also taking heat and this isn't really well deserved. Of course politicians generally deserve any public scorn that they get, the professional public servant and especially the federal civil servant does not. For the most part, they are a very professional group of men and women but with over two million public employees working for the federal government a few bad apples have managed to damage the reputation of those who work daily in an effort to provide the best possible service to the American taxpayer.
One common area where all public servants take a hit is the perception that federal employees have a great pension system. This MIS-conception is due in large part to the old Civil Service Retirement System which was a bit different than the current Federal Employee Retirement System or FERS as it is generally called.
Having any pension in the 21st century is rather unusual but is actually quite common for public employees. For federal employees, the FERS comes at a cost and that cost is 1 percent of salary. The pension that is earned is 1 percent of salary for each year of federal service and it is based on the average of the highest 36 months of federal pay. In order to retire with this amount, the federal employee must meet one of four different ways as published by OPM. Some of these involve a term called Minimum Retire Age (MRA) which is between 55 and 57 depending on the year of birth.
The following scenarios describe the ways that a federal employee can meet retirement requirements:
A. Complete 30 years of service and have reached the Minimum Retire Age (MRA) which is between 55 and 57 depending on the year of birth.
B. Complete 20 years of service and have reached age 60.
C. Complete 5 years of service and have reached age 62.
D. Complete 10 years of service and have reached the MRA.
Butler presents several examples of federal government pensioners:
John L. Age 62, Entered federal service after getting laid off from Lehman Brothers back in 1998 at the age of 50. John found a federal position in New York City and because of his MBA and extensive experience in the finance industry he was able to rise up to the grade of GS-14 and is now at Step 5 which means his salary is $123557. With his 12 years of service John will see a gross retirement amount of $1,235 monthly and from this taxes and some insurance will be deducted. John can also draw a much reduced Social Security check if he so elects since he isn't at full retirement age. Hopefully he was able to save his 401K and roll it over into an IRA or the Thrift Savings Plan which is very similar to a private sector 401K.
Mary K. Age 60, Retired from the US Navy at age 38 with 20 years of military service back in 1988 and then landed a job in logistics which was similar to her military job in Norfolk, VA. Mary rose to the grade of GS-12 and is now at Step 8 which puts her salary at $84863. With her 22 years of civil service Mary will see a gross monthly amount of $1,711 before deductions. In Mary's case, she could have retired at 58 with 20 years of federal service and the MRA but her pension would have been reduced. Retirement at 58 would have resulted in a monthly pension of $1414 which would have been further reduced by 10 percent down to $1,272 monthly.
Barry O. Age 67 has worked a wide variety of jobs and managed to land a federal job at age 59 in Washington, DC. With his 8 years of federal service Barry is finally ready to retire and has waited to this point to have a higher Social Security benefit in addition to his federal retirement. Barry is retiring as a GS-9, Step 4 and has an annual salary of $56,791. With his 8 years of service, Barry's federal pension will be $378 monthly before deductions.
George B. Age 57 entered federal service right out of college at age 22 and now has 35 years of service. When the FERS system was started in 1988, George opted for FERS because he doubted he would stay for a full career and wanted to build up his TSP with the matching government contributions. George is working in Boston, MA and is a GS-15, Step 7 with an annual salary of $149,203. His retirement pay is $4,787 per month before deductions.
While only a small percentage (about 1 percent) of federal employees reaches the GS-15 level, it is this level of pay and pension that provides the fuel for the "great pension" myth that federal employees enjoy. The vast majority does not have such a great pension and will have to either work at some sort of part-time job while enjoying their federal retirement or will have to cut back on their lifestyle.
Mary K made $85,000/year while working. She will receive $15,265/year from her pension before deductions.
Barry O made $56,000/year while working. He will receive $3,336/year from his pension before deductions.
George B made $150,000/year while working. He will receive $57,444/year from his pension, before deductions. George B is an example of a federal worker who reached the highest level of government service (GS-15, Step 7). About 1% of federal employees reach the GS-15 stage.
Pension modification for the George B's of the world seems reasonable to me. But pension modification for the John L's, the Mark K's, and the Barry O's does not seem reasonable, unless the goal is to kill as many old people as we can. Old people are, in most cases, no longer productive for society. Why not throw they away, once we've gotten all we can out of them? Of course, we are, in many cases, speaking about your wife or your mother or your brother or your father.
Your argue: "Let them work! I have to work!" Yes. But we've air-mailed millions of jobs to China and Vietnam and India, in honor of our Business Class's desire for ever-expanding profits. American business is NOT creating new jobs. Where are all these jobs for pensioners going to come from?
The emotionalism of the issue is astounding to me. Many people who defend the trillion dollar bank give-away by the federal government become apopleptic when discoursing on the 'free lunch of government workers'.
Our goal as a nation should be to help provide those who have worked productively for the good of society for half of their lives a decent old age. That is my opinion. I realize that is in opposition to many others who seem to feel that if they can't work they should be poor or dead. What kind of a world are we living in? It's not a Christian world. It's a world without a soul and without a heart. It's a world at war with itself.
Treat the powerless with justice and with mercy -- for some day you too will be powerless.
Where is the money going to come from to pay for our social burdens? Ameriica has the lowest tax burden of any First World country. We need to raise taxes -- this is the reason we are broke. The government has been lowering taxes for decades now, and, in 2001-2008, the banks stole most of the excess money that lower taxes had helped create. (You see, I can be emotional about the issue also.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.