Not So Modest: Pension Benefits for Full-Career State Government Employees

Just how generous are public pension plans? In this AEI report, Andrew Biggs tabulates the benefits—including pension and Social Security benefits, but not including health care benefits—that an average, full-career, state employee who retired in 2011 or 2012 now receives and compares the total with the income of full-time, full-year employees in his state. (Bear in mind that twenty-two states include teachers in their state retirement systems, while twenty-seven have separate systems for them.) In the average case, a retired state employee enjoys combined pension/Social Security income greater than the income of 72 percent of full-time employees working in his/her state. At the less generous end of this spectrum we find Maine, where benefits to full-career government employees (including teachers) exceed the earnings of 31 percent of full-time workers. At the high end is Oregon, where state retirees (including teachers) exceed the earnings of 90 percent of full-time workers in the Beaver State. (You read that right.) Other exceptionally generous states include West Virginia, California, and Nevada, all of which pay average full-career state retirees benefits that exceed 87–89 percent of the wages earned by full-time workers in those jurisdictions. Biggs also examines replacement rates, which measure retirement income as a percentage of pre-retirement earnings. Most financial advisors recommend a replacement rate of 70 percent, meaning that one’s retirement benefits (including Social Security) should equal 70 percent of one’s pre-retirement salary. Well, Biggs finds that the replacement rate paid to an average full-career state employee is 87 percent of final earnings. The lowest replacement rate is 54 percent in Mississippi, but three states (Oregon, California, and Texas) pay total retirement benefits that (with the addition of Social Security) equal or exceed final earnings. The upshot: most Baby Boomers who spent a lifetime in government service can look forward to a very comfortable retirement; let the generational jealousy commence.

SOURCE: Andrew G. Biggs, Not So Modest: Pension Benefits for Full-Career State Government Employees (Washington, D.C.: American Enterprise Institute, March 2014).

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