A report from the U.S. Census Bureau Monday indicates that state and local government retirement systems paid $168 billion in benefits during fiscal 2007.
At a time when Congress is scrutinizing the salaries and retirement benefits of U.S. automotive workers, it may be time to look closely at the cost of defined-benefit retirement systems used by many governmental bodies. If political leaders feel the private sector cannot sustain expensive retirement packages, it would be good to apply the same logic to government retirements.
In order to make clear what we’re considering, a defined-benefit system guarantees a particular payout. A defined-contribution plan is similar to a 401(k) plan which may be matched, but does not include guarantees. Defined-contribution plans are used a lot in the private sector and depend on the stock and bond markets for any increase. The defined-benefit plans which are the rule for government employees rely on tax dollars to cover the higher costs.
Illinois has 350 public employee retirement systems, the most for any state except Pennsylvania, where 900 retirement operations exist.
Under one popular Illinois plan a state worker is vested after eight years on the job, with a guarantee of 25 percent of salary at retirement. For this plan, and some others, full medial benefits are included.
One worker at a local state facility was on the job for a little more than three years. When a retirement incentive program came up he was able to get credit for another five years on the job. He retired with 25 percent of his salary and full medical coverage after a little more than three years.
Some of the most generous retirement plans in Illinois involve legislators, state police officers and prison guards, all of whom may get up to 85 percent of their salaries after as little as 20 years on the job.
Illinois teachers have a somewhat different retirement plan, receiving up to 75 percent of their final pay after 34 years of service — or credit of 34 years, which can sometimes be boosted by early retirement incentives.
One other benefit of those retirement packages is that many of them get an annual boost through cost of living adjustments, which may average about 3 percent per year.
Illinois has the largest underfunded pension system in the nation and held that distinction before the stock portfolios that support the system plummeted this year.
Missouri has a less generous retirement plan. Some would call it a more realistic plan if they chose to state it positively.
Lawmakers often point to the retirement program as a selling point. They say without the great retirement packages, nobody would want to work for governmental entities. Private industry has greater salaries, they say.
The other key player in creating retirement programs is organized labor. Unions that represent the workers help negotiate the contracts with the state and over time have inched more modest retirement programs upwards. These groups will not gladly give up such lavish benefits for their future members.
Whether federal, state and local governments change their retirement programs has yet to be seen. It would take a lot of political clout to make it happen. It would also take a lot of support from average taxpayers/voters who want government costs to stop climbing so rapidly.
Too bad this is not on everyone’s radar.