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

By Biggs, Andrew G. | AEI Paper & Studies, March 2014 | Go to article overview

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


Biggs, Andrew G., AEI Paper & Studies


In presenting their benefits as "modest," public pension plans and employee advocates commonly cite low average payments to retirees. For instance, the American Federation of State, County and Municipal Employees (AFSCME) declares that "the average AFSCME member ... receives a pension of approximately $19,000 per year after a career of public service." (1)

This statement is false: for those who spend a career in government, public-sector pensions are far more generous. The average benefit for a full-career state government employee is roughly twice the $19,000 figure claimed by AFSCME, and in some states substantially higher. The low average benefit payments cited by pensions and public employee unions are produced by including employees who do not spend a full career working for the government. Short-term government employees do receive modest pension benefits, and many would be better off with a defined contribution (DC), 401(k)-type plan. Full-career public employees retiring today, by contrast, receive pension benefits that place them among the highest-income retirees in their states.

What Full-Career Government Employees Really Receive

On a state-by-state basis, I have tabulated the benefits an average full-career state government employee who retired in 2011 or 2012 will receive. (2) In most cases, data are compiled directly from the Comprehensive Annual Financial Reports (CAFRs) published by public plans. For instance, the New York State and Local Retirement System's CAFR reports that a government employee retiring today after 30-34 years on the job receives an average annual pension benefit of $43,020. In a small number of cases where CAFR data is unavailable, I estimate the benefits payable to new public retirees using salary data and benefit formulas available in pensions' annual actuarial valuations. (3) In one case, Nebraska's cash balance plan, the estimated results should be treated with particular caution. (4)

Annual benefits for new retirees are reported in figure

1. In many cases, these benefits look far from modest. In California, for instance, average annual benefits for a full-career retiree reach $61,560. Benefits in Connecticut and Colorado are comparable. In Nevada, typical benefits for a full-career state employee retiring today lead the nation at more than $64,000. In all of the above states, with the exceptions of Colorado and Nevada, state employees also would receive Social Security retirement benefits.

But other states are stingier, such as Maine, where annual benefits for a full-career state employee barely top $25,000. In Mississippi, a new retiree would not receive even $15,000 per year. In the average state, annual public pensions for full-career retirees come in at $36,131. Because larger states pay higher average benefits, the average individual receives somewhat higher benefits.

But these raw dollars do not tell the whole story. For one thing, the cost of living can differ significantly from state to state. Moreover, while most state employees are eligible for Social Security benefits, some are not. Finally, what matters most for policymakers is how pensions offered by the government compare to the options offered in the private sector, not how one state government compares to others.

For these reasons, I compared total retirement income for full-career state employees, including both pension benefits and Social Security retirement benefits, to the earnings of full-time, full-year employees in each state. (5) Pension benefits are derived from plan CAFRs, and Social Security benefits are estimated using the Social Security Administration's (SSA's) simple benefits calculator based on state employees' final salaries preceding retirement. Data on earnings for full-time workers are derived from the Survey of Occupational Employment Statistics compiled by the Bureau of Labor Statistics. These include not merely mean earnings but also the distribution of earnings within the state. …

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