On June 9th Reuters ran a story entitled “California’s Brown set for fight over pension reform” that has some interesting quotes from his Democratic counterparts in the state legislature. According to the article, Warren Furutani, an assembly member representing Long Beach. who co-heads a joint committee that will craft pension legislation, had this to say:

“There was a lot left to do [regarding pension reform], such as taking care of workers not covered by federal Social Security because of their state government jobs.” (Italics added)

This is a common refrain voiced by pension reactionaries: State and local government workers are unable to enjoy social security, and therefore we must safeguard their pensions. But has Mr. Furutani taken a recent look at the average state or local pension benefit vs. the average social security benefit?

According to the social security administration, on their FAQ page “Average monthly Social Security benefit for a retired worker,” “The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012.”

On a yearly basis, this means the average social security recipient today can expect to collect $14,760 per year.

What about public sector pensions?

Here is a statistic that is easy to cook. Because most state or local government pensioners have not worked 30+ years for the government. This pulls the average pension down, as does the fact that most government pensioners are still people who retired 10+ years ago, well before rates of pay (used as the base for calculating pensions) as well as pension formulas themselves, were elevated far beyond levels that are either sustainable or equitable. But what taxpayers have to fund today are pensions based on a workforce that will retire in the future, according to formulas currently in effect. And in cases where pensions are only awarded for 10 or 15 years service, there are two or three people who will all get these partial pensions. The cost to taxpayers to fund one pension based on 30 years work is exactly the same as funding two pensions based on 15 years work. So here is the apples-to-apples typical state or local pension in California, according to the annual reports of the pension funds themselves:

If you go to the pages referenced below you will see that the AVERAGE pension for people who retired after 30 years work, and who retired in the past few years after benefits were enhanced, is nearly $70,000 per year.

CalPERS Annual Financial Report FYE 6-30-2011, page 153
http://www.calpers.ca.gov/eip-docs/about/pubs/comprehensive-annual-fina-report-2011.pdf

CalSTRS Annual Financial Report FYE 6-30-2010, page 149

Apparently Assemblyman Furutani believes that we need to be careful that we don’t create undue hardship by excessively paring the pension benefits for state workers, because they don’t get social security, which pays on average $15,000 per year starting at age 68, vs. government pensions, which pay on average nearly $70,000 per year starting around age 55.

It is tempting to indulge in a bit of sarcasm here. Shall we choose? Work for the government and, on average, you can retire 10+ years earlier and receive nearly five times as much per year in retirement via your pension. But you’ll lose your social security benefit. Darn!

To be constructive, there is a lot we can learn from social security. Unlike public sector pensions, they are progressive, which means the more you make, the lower the percentage of your average earnings will come back to you in the form of a social security benefit. Applying progressive rules to the pension formulas would go a long way towards fixing them financially. For example, if the average pension benefit were reduced to merely twice the average social security benefit, or to $30,000 per year, the financial problem would disappear overnight.

Another virtue of social security is the fact that it is based on average earnings over an entire career, not the final year of pay. This eliminates the potential for spiking. Another virtue of social security is the fact that the funds are not gambled in the international markets by global bankers (i.e., pension fund managers) but are held in trust. If pension funds were required to be invested in low risk instruments such as U.S. Treasury Bills, as they once were, the great con job regarding astronomical rates of return justifying absurdly elevated benefit formulas would have never happened.

Ultimately, what Assemblyman Furutani and his ilk need to learn from social security is that it is financially sustainable, whereas government pensions are not. This is because social security only pays about one-third of average career earnings to beneficiaries, starting at age 68, while government pensions pay approximately two-thirds of average career earnings to beneficiaries, starting at age 55. And because government pensions start paying recipients earlier in life, the worker to retiree ratio in the public sector is close to 1-to-1, whereas the social security system’s worker to retiree ratio will never be lower than about 2-to-1. With no return on investment, these metrics imply social security is sustainable via 16% withholding, whereas pensions require 66% withholding to achieve sustainability. Which system do you think will crash first?

Because it provides a modest, appropriate minimum safety net of taxpayer funded retirement security to all American workers, social security is not insolvent, nor is it a Ponzi scheme, nor is it the enabler of hyper-aggressive global casino capitalist investment scams, backed up and bailed out by taxpayers. Public sector pensions are all of these things.

Assemblyman Furutani and his entire gang of pension reactionaries would be doing California and the nation a huge favor by insisting that every state worker indeed receive social security, which they have heretofore been deprived of. They can have social security and nothing else, just like every other taxpayer. Perhaps then an honest national dialog regarding the structure and solvency of social security – a far more easily managed challenge – can take place, because public and private sector employees would be united as stakeholders in the same benefit.

13 Responses to Every State Worker Deserves Social Security

  1. Tough Love says:

    How about we coin a new term ….

    Since those who oppose pension reform like to call those who support pension reform …. “Union haters”, how about we begin calling those who oppose pension reform … “Taxpayer haters”.

  2. Waldo Wanderer says:

    I am a government worker and there is nothing worthwhile here except the title. The problem is conservatives want to destroy public employees to obtain the desirable service contracts. Democrats want to provide services to low and moderate income people, public employees are the tool for this. Shortsheeting govt workers to continue services to low and moderate income voters is their scam. Neither party will faithfully fund a state or municipal DB pension fund. At least Social Security would receive consistant funding. The benefit is consistant funding. At least SS gets somewhat funded and is much less of a target to conservatives.

    • Editor says:

      Waldo – your suggestion that “conservatives want to destroy public employees to obtain the desirable service contracts” is inaccurate. Here is how I would rephrase that: “crony capitalists want to destroy public employees to obtain the desirable service contracts.” No good conservative wants to see this. And no conservative – unless they are a rather extreme libertarian – would suggest that we shouldn’t relegate many significant services to government agencies, not private contractors.

      The irony in your comment is that if union work rules and union pay scales had not been elevated well beyond anything remotely sustainable financially or equitable by comparison to private sector norms, there wouldn’t be any pressure to move government-run services into the hands of private contractors.

      As for your comment “nothing worthwhile here except the title,” you will have to explain how the article’s logic falls short with respect to the relative sustainability of social security, vs. the blatant, overwhelming unsustainability of public sector pensions. If there is a flaw in the numerical reasoning or the underlying assumptions, please let us know.

      • Tough Love says:

        Editor, Waldo isn’t a deep thinker. He’s just a typical Civil Servant who doesn’t want his gravy train derailed.

  3. Keith Presson says:

    I’m from Alabama and have no real stake in this particular California issue. However, the author misses an important point – most social security workers do not work for the state and should not expect a pension from the state. Social Security was enacted in the Great Depression era as a self-funded poverty prevention program for seniors (not a pension program)that heavily subsidizes poorer retirees at the expense of those more well-off. On the other hand, pensions or 401Ks for workers, such as those of IBM, GM, Microsoft, a state, or the federal government are generally heavily subsidized by their employer as part of the total compensation package and therefore have higher benefit levels than one would reasonably expect from their lifetime Social Security contributions. Although it is fair to compare state and federal pensions with those in the private sector (as a part of total compensation comparisons), neither private nor public employee retirement plans should be compared with Social Security benefits, whch were enacted for a completely different purpose and are funded differently.

    • Joe says:

      Neither IBM, Microsoft, nor GM offer pensions. Just look it up!

      And 401Ks are NOT “heavily subsidized” by employers. The maximum anyone in my family has received is a match on the first 3% and thereafter you are on your own. 3% is not “heavily subsidized”.

      It’s disingenious of you to try to equate these behemouth corporations (IBM, Microsoft, GM) with your typical private sector business. Only 20% of private sector workers get a pension (which are probably not any where near as generous as public sector pensions).

      Social Security was never meant to provide full retirement security and neither are pensions. You are supposed to save on your own too.

      And if, as you say, Social Security is more like a social program that subsidizes poor retirees then how is it the public sector workers are getting away with contributing nothing to this social program? Is it fair that only private sector workers have to contribute to Social Security, since it means so much to our poor retirees?

      (1) http://money.cnn.com/2012/02/15/autos/gm_pension/index.htm
      (2) http://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p1.html

  4. joe says:

    Uhh Keith, you didn’t divulge whether you are public or private sector worker in Alabama. But anyway, …

    Neither IBM, Microsoft, nor GM offer pensions. Just look it up! So no, the state (i.e. taxpayers) are not responsible to take care of you in retirement.

    It’s disingenious of you to try to equate these behemouth corporations with your typical private sector business. Only 20% of private sector workers get one (which are probably not any where near as generous as public sector pensions).

    Social Security was never meant to provide full retirement security and neither are pensions. You are supposed to save on your own too.

    And if, as you say, Social Security is more like a social program that subsidizes poor retirees then how is it the public sector workers are getting away with contributing nothing to this social program? Is it fair that only private sector workers have to contribute to Social Security, since it means so much to our poor retirees?

    (1) http://money.cnn.com/2012/02/15/autos/gm_pension/index.htm
    (2) http://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p1.html

  5. Donkey says:

    Waldo Wanderer, being a RAGWUS feeder, you have no clue that you are overpaid and underworked. Every member of the RAGWUS needs to have their pay cut 30%, with no pay ever reaching over $90,000 a year. Cut their benefits 50%, cut their pensions to no more than $50,000 a year no matter the job title held, with no COLA’s, no spiking and no perks!! 🙂

  6. Waldo Wanderer says:

    Tough Love is a troll who frequents pension article comments sections. His comments sound credible to others of his ilk. My best solution is to privatize all government functions so those currently working in government jobs can receive the combination of competitive wages, 401K and Social Security. This is a better deal than the governments total compensation package. Before you lazy propagamdists unload on me please apply for a state or municipal government position in your chosen field. I guarantee if you apply you WILL not take the position. The next question is why does Tough Love spew this misinformation around the internet? My experience observing others of Tough Love’s ilk is that they equate paying taxes to living in a gulag in Stalinist Russia. All you Tax Guys need to apply for your applicable job in government and you will see who is lying and engaging in deception. My observation has been none will take the challenge, they love their own fantasies about govt workers.

    • Tough Love says:

      Quoting Waldo … “Tough Love is a troll who frequents pension article comments sections. His comments sound credible to others of his ilk. My best solution is to privatize all government functions so those currently working in government jobs can receive the combination of competitive wages, 401K and Social Security. ”

      I’m hardly a “troll”, being extremely well versed in pension plan design and funding and the extraordinarily high cost of the VERY VERY rich budget-killing Plans typically afforded Public Sector workers everywhere.

      That being said I agree 100% with your statement. “My best solution is to privatize all government functions so those currently working in government jobs can receive the combination of competitive wages, 401K and Social Security. ”

      Taxpayers would be eminently better off with this structure. MUCH lower overall cost (even though you believe otherwise), and all the game-playing to spike and enhance pensions (often retroactively) would disappear. Wonderful, simply a wonderful suggestion.

      P.S., Waldo, you won’t find even ONE Public Sector Union that agrees with you …. which just confirms why it’s such a GOOD option for Taxpayers footing the bill.

  7. Allan Masri says:

    Waldo,

    I agree with you generally, but have some problems with 401K plans. Sure, it sounds like a great deal, but as many of us have discovered, the stock market is not a bank. Assets in 401K plans can decrease. Advocates argue that the stock market averages 10% return on equity, better than any other investment. The last decade, however, has seen no growth in equities. Assets that have suffered through 10 years of zero growth not only lose what they might have gained, but also lose equity interest in the future. For example, if my 401K is $100,000 instead of the $200,000 it might have been, all future equity interest will be based on $100,000, not $200,000, which will be a huge loss to my retirement funds. Also, if a recession hits just before retirement, a retiree will be forced to withdraw funds when asset values are low. Relying on the stock market to increase my retirement fund is extremely risky, given that Wall Street investors have turned the stock market into a gambling casino where they make the rules and take the profits.

  8. Charles says:

    Then you owe me 40 years of back pay, 36 of them which were at 50% of private sector rates. That is at least $3M. Sounds reasonable to me

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