Public v. Private Pension Divide
Today's Newsday has several interesting articles covering the growing divide between public sector and private sector pensions and planning for retirement. Aside from the typical sensationalistic media hype that portrays "poor" public sector workers being compared to their "rich" private sector counterparts, the articles show the growing disparity between the two groups in terms of pension benefits. According to the article: "...the gap between public and private employees is widening as American corporations scramble to cut back or eliminate traditional pension plans. Only about one of every five private sector employees still has one, and every month more major U.S. corporations announce the end of their plans. But similar sacrifices haven't been seen in the public sector: 90 percent of the nation's government workers are covered by a traditional pension plan as of 1998, the most recent figures available.... By one estimate, the average public pension in New York State offers more than twice the payout that private pensions do."
A few other interesting tidbits:
¬?When a private sector pension goes belly-up, the PBGC steps in and provides the benefits - typically a much smaller amount than the original pension. When the public sector pension runs out of money, it is typically tax increases that fund the deficit.
¬?401(k) plans and other defined contribution plans found in the private sector don't have any guarantees.
¬?"In New York municipal workers in the state pension system retiring in 2004 after 35 to 39 years of employment collected more than $44,000 a year - or 74 percent of their final average salaries - from their pensions alone. A typical private pension, coupled with Social Security, replaces no more than 67 percent of salary. Police and firefighters pulled in an average of nearly $78,000, also 74 percent of their final average salaries. And teachers collected nearly $67,500, or 76 percent of their final average salary, if they worked at least 35 years in the system, according to the teachers' pension plan report for the year ending June 2005."
¬?Public employees contribute relatively little. Only workers hired after July 1976 contribute anything to their pensions: 3 percent of wages for their first 10 years on the job. And they get an added bonus: Public-sector retirees pay no state or local income tax on their pensions. Their private-sector peers get a $20,000 annual exemption from taxes.
¬?According to the Bureau of Labor Statistics the number of private sector employees who participate in a traditional pension fell from 28% in 1990 to 19% in 2003. Approximately 90% of public sector employees participate in traditional pension plans.
Seems to me that we should be looking at retirement planning differently. Everyone should be expected to contribute something to their own retirements and there needs to be a more equitable system. The article seems to portray "rich" private sector employees with seemingly lofty salaries in their working years compared to the "sacrifices" in salary that public sector employees have made. Here on Long Island it is not at all uncommon for some public sector employees to make well above six-figures. There are countless other private sector workers all over who are not pulling in six figures - from retail, to non-profit, etc. Having said all of that, let's not get into the issues of health insurance and the millions of working uninsured....
