The 90 Percent Who Work in Private Sector Should Read This About Public Sector Pension Reform

The state of Ohio is finally getting around to what the Dayton Daily News a "drastic pension overhaul."

But the real takeaway from the story, in my opinion anway, is just how different public and private sector pension benefits are. Consider the "sweeping changes" to defined-benefit plans:

...The bills would require active teachers to contribute 14 percent of their pretax income to the retirement plan, up from the current 10 percent....

...some teachers are frustrated by a proposal that would push retirement eligibility back at least five years, to age 60 after 35 years of service...

...police and fire employees would have to contribute more money to their retirement, with the increase from 10 percent to 12.25 percent phased in during three years....

...changes in how officers’ final average salary will be calculated for pension purposes are significant, as is the eventual increase in retirement age from 48 to 52....

You got that? Teachers and public safety folks in Ohio, who don't pay into Social Security by the way, wouldn't be able to tap into their full pensions until 60 and 52 years of age. The state currently contributes about 14 percent of their salaries for retirement too; it's unclear from the story whether employee increases would minimize state contributions but I'm assuming they would.

For most uses, private-sector folks can't access 401(k) or 403(b) funds until just shy of 60 years. And the typical employer match, when it's there at all, is 50 percent of the employee's contribution. Needless to say, defined contribution plans don't guarantee retirement outcomes, either. 

Contrary to claims, public-sector workers do not make less than their private-sector counterparts in Ohio. Generally, they make significantly more than comparable private-sector drones in straight salary. When you factor in benefits, they make 34 percent more than private-sector comps. In nearby Michigan, public sector workers make 47 percent more in total compensation than similar private sector ones. For federal workers, the spread is 45 percent in total comp. And for the thousandth time: This is comparing similar workers. 

The Dayton Daily News reports that 41 states have made major pension reforms in the past two years. But until they put the kibosh on defined-benefit plans altogether, don't expect to see the sorts of major savings that will take the pressure off the private sector to pay for public sector benefits.

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  • Pro Libertate||

    As scams go, it's been an absurdly successful one.

  • ||

    Serious question: Nick, I realize that this article deals strictly with defined pension plans, but is there any reform of dental and medical plans, specifically, employees paying more into their plans? Defined-benefits also includes this, and I didn't see anything in the FA addressing this.

    Or is that too much of a hot potato in an election year and are these plans exempted by ObamneyCare?

  • Paul.||

    I look forward to my private sector retirement as a sign spinner.

  • Drake||

    Real reform would be giving every newly hired public worker a 403b with a 3% match and nothing else - just like the rest of us get.

    Save whatever you want, retire whenever you want.

  • Red Rocks Rockin||

    They need to take it a step further and require in-state residence in order to receive full pension benefits. I'm not real fond of state and city public-sector retirees who leave the communities that paid their salary for decades, and expect the remaining residents to continue to pick up the tab on their lifestyle when they're not even living there anymore.

  • Velcro Bootstraps||

    Freedom of Movement?

  • Killazontherun||

    They are not prevented from moving in the above scenario, Boots.

  • Paul.||

    Hurts the environment.

  • BigT||

    IIRC here in Ohio this was recently declared unconstitutional.

    http://www.cleveland.com/cityh.....a_leg.html

  • Drake||

    No.

    Bad laws don't fix bad policies. Just give them 403b's and let them be free.

  • WWNGD?||

    I knew a Broward County FL Sheriff who bragged about getting his 750,000 dollar pension, he said if he waits a few more years it will be up to a million.

  • mr simple||

    I thought there were only women in the Broward County Police Department.

  • wareagle||

    too many facts in this story that do not fit the narrative of the poor downtrodden public servant being victimized by ruthless governors. This rocks the narrative that the left puts forth, confirming why the left has to rely on a narrative rather than reality.

  • Killazontherun||

    Being tied to the state, supporting it's every demand upon resource, defending the actors within it no matter how unsound the justification, is why the modern left is so fucking useless.

  • Drake||

    What I wouldn't give for a ruthless Governor, President, and Congress!

  • Raston Bot||

    it's unclear from the story whether employee increases would minimize state contributions but I'm assuming they would

    With unfunded liabilities what they are, I'm going to assume the opposite. That the "savings" from these reforms will eventually be targeted and added to the pension pool.

  • Killazontherun||

    Off Topic: Given it is impossible for Romney to come across as sympathetic through his own actions, Obama and his campaign people are determined to do it for him:

    http://www.youtube.com/watch?v.....r_embedded

    If Obama is trying to lose the election but sought the democratic nomination anyway, do the Democrats have a base for a lawsuit when he loses?

  • BakedPenguin||

    It amazes me that the Republicans are too stupid or lazy to find people who lost their businesses / jobs through excessive taxation or regulation.

  • Brett L||

    Not me. It amazes me that these people can put their clothes on right-side out. Everything more complex than that, I attribute success to accident.

  • Almanian...still||

    I blame Bush

  • Brett L||

    It was the McCain camp that moved this from hypothesis to theorum for me.

  • Mr. Soul||

    all this is outrageous to me, an Ohio tax payer. However, what we get for this cost incurred is the real crime. Dumb kids getting dumber and police/firemen with nothing to do raising money for charity. High priced and worthless.

  • ||

    I live in a fairly rural city in Texas. In the past decade we've grown some, and added a police dept. and fire station. Every day I hear the sirens going by, often several times per day.

    It's amazing our city didn't burn down or get overtaken by mobs of criminals before these additions!

  • Kwanzaa Cake||

    some teachers are frustrated by a proposal that would push retirement eligibility back at least five years, to age 60 after 35 years of service...

    __________________________

    So much for teachers teaching out of love for their profession and nothing more. Seems to me they very much want to move down to Del Boca Vista and play shuffleboard rather than continue teaching. Matt Damon, call your office.

    By the way, when Damon et al complain about "shit pay" for teachers, they never include the present value of a defined benefit pension that permits such early returement. The present cash value of those benefits is fucking huge and completely unavilable to most private-sector workers.

  • lynnoleum||

    While I don't anyone would disagree that there is a disparity between public and private sector retirements, I don't hear anyone talking about why private sector employees when searching for a job don't include a pension as part of your requirement when looking at careers. I have both a private and public pension. That is key to me even looking at a job. There are still private employers who offer a pension. Instead of making ridiculous comments like letting them have their employers's 3%, blah, blah. The real questions is why haven't you sought out your own pension? Easier to blame someone else for your own short sightedness.

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