This.
Via Tom Elia of the New Editor, here’s a list of the top 100 pensions of Illinois school administrators. The valuations represent the worth of the pension assuming the beneficiary retired at age 56 with a life expectancy of another 29 years. The average value of these pensions is $8.879,257.90. The number one pension goes to Neil C. Codell of Niles Township Community High School District (a suburban area just north of Chicago and just west of the lakefront). Mr. Codell’s salary is $885,327 and his estimated first-year pension is $601,978. The pension is valued at $26,661,604.
Whenever I hear debate over the appropriate salaries for public sector employees, I can’t help but feel we’re having the entirely wrong conversation. It’s pension liabilities that will eventually sink state and local government. It’s also where the real friction lies between public and private sector employees. Then there is the ultimate unknown, will existing pension systems hold up under the weight of a future that will likely include municipal bankruptcy?
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(I think at least part of the discussion of high salaries always has the thought that a person’s retirement will be based on that high salary.)
Anyone who was hired by the Commonwealth after January 1, 1975 is contributing more of a percentage of their salary to the retirement than do workers who pay social security tax (6.2%). If you’re a state employee who was hired recently and make about $60,000 a year, you’re paying approximately 10% of your salary to state retirement. Many of these employees work for the state (and pay a greater percentage of their wages towards retirement) because they feel they’re going to get a pension that is better than what they’d get in Social Security. And I don’t think in Massachusetts that you can retire at 56 with full benefits (in most cases).
[Also, I'm not sure how things work in Illinois, but one of the assumptions in that piece was that the person would get a 7% salary increase every year for both salary and pension; I don't know where that's happening, but I'd like to work there!]
So — I guess — the state has proved that people will be willing to pay a greater percentage of their pay in exchange for [what they perceive to be] a guaranteed pension. Why doesn’t anyone take a look at what percentage would be needed to be (somewhat) sustainable and have people opt into that kind of system? Would people be willing to pay 20% of their salary (just to throw it out there) if it meant a guarantee of x% of their salary at such an age and so many years of working?
G’day Brendan,
Brendan Melican here from Australia. Good to see another Brendan Melican some where in the world and even better to see one trying to make a difference. We have the same economic problems Any economy with 50% of its workforce being payed by the government to either work or not to work is going to create an unstainable economy in the long term. Anyway enough of the serious stuff. If you are ever in Australia, let me know and we’ll go for a beer.
I have to thank Nicole for her comments and analysis. As a state worker who fits almost exactly the example she provided, I pay close to 11% of my salary into the pension fund. Any financial advisor will tell you that investing 10% of your income every year will provide you a comfortable retirement. We, however, don’t have any control over how our money is invested and the return we get (over the past few years the state pension system acutally performed worse than if it had been invested in an index fund). I have for the past few years been investing an additional 7% of my salary in a private fund just because of the uncertainty as to whether the money I have been paying in to the pension fund for the past 10 years will result in a sustainable retirement income (both due to investment performance and the actions of politicians trying to placate the electorate by cutting our benefits).
Contrary to popular belief, though workers have the option of retiring after 20 years of service, if you do so, you will retire on less than 50% of your salary (sometimes significantly less). You have to work to at least 65 to get close to the 80% maximum. The problem is that there are a select number of people who have managed to somehow work the system to incur outrageously high pensions. This is not the norm for any of the regular working people in government service. If you think the general public is upset about that, how do you think we feel? Their unearned and undeserved windfalls are jeopardizing our retirement by taking up large chunks of the group fund, and potentially forcing us to lose the pensions we have been paying for all of our careers.
I agree that pension reform is necessary to stop these windfall pensions from happening, and also to improve management of the pension fund. This needs to happen to protect the benefits of hard working people who have been pulling their weight. It’s not us against the public, but all of us against waste and special priviledge.