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Congressional pensions fall on high end of scale

By Kevin G. Hall
Wednesday, March 16, 2011; 10:25 AM

Some members of Congress haven't been shy about criticizing underfunded state and local pension plans, even though they themselves enjoy much heftier retirement packages than most private-sector employees and state workers do.

Budget battles in Illinois, New Jersey, Ohio and Wisconsin have captured headlines of late as lawmakers struggle over how to pay retirement benefits for state and local government workers. Some Washington lawmakers have jumped into the national debate.

In a recent speech to South Carolina Republicans, for example, Rep. Michele Bachmann (R-Minn.) said, "We've got to get real about what we can and cannot afford" in state pensions.

On the other side, Ohio Democratic Sen. Sherrod Brown linked opponents of public-sector unions to Nazi Germany.

For all the theater, members of Congress, regardless of party, aren't saying much about their own retirement plans, which are much more generous than those held by most Americans. In fairness, the nation's lawmakers carry out responsibilities more comparable to top corporate executives than those of average workers, but there's no available data on CEOs' retirement packages, which often feature forms of compensation other than pensions, such as stock options.

Lawmakers also pay less into their pensions, and get a better match from taxpayers, than most state employees do across the nation.

"They still reserve to themselves a more generous formula than rank-and-file members of the federal government," said Peter Sepp, executive vice president of the National Taxpayers Union, which long has charged that U.S. lawmakers' retirement benefits are too generous.

Since 1984, members of Congress have enjoyed both a defined-benefit plan and a defined-contribution plan. The defined-benefit plan gives them a fixed pension in retirement that's scaled to their number of years in office.

By McClatchy Newspapers' calculation, 13 sitting senators and 31 members of the House of Representatives - about 8 percent of the Congress - have served at least 25 years and accrued annual pensions worth at least $50,000. By comparison, for average U.S. retirees 65 or older who receive private pension payments, the median annual amount is $8,016, according to the nonpartisan Employee Benefits Research Institute.

As long as they've served five years, lawmakers can collect their pensions starting at age 62; if they've served 20 years, they can collect them at age 50; and if they've served 25 years, they can collect them no matter how old they are. Their annual pension annuities cannot exceed 80 percent of their final salaries.

Only 30 percent of active workers in the country had defined-benefit plans last year like the one available to lawmakers, according to the Employee Benefits Research Institute.

Lawmakers also can contribute up to $16,500 every year to a 401(k) retirement plan on a tax-deferred basis, or about 9.5 percent of their pay. Taxpayers match them up to the first 5 percent of a representative's or senator's salary, which has been $174,000 since 2009.

Federal lawmakers contribute 1.3 percent of their salaries - $2,262 this year - into that retirement plan. By comparison, the midpoint for defined-benefit pension contributions from state workers - whom some critics have painted as fat cats living off the taxpayer - is 5 percent.

That's not the only advantage Congress enjoys. The accrual rate, a calculation used to determine the rate at which a beneficiary accrues full retirement benefits, is much more generous for federal lawmakers than for most Americans.

Most pension plans have a rate of 1.3 percent to 1.5 percent, according to Labor Department and academic data. Federal employees have an accrual rate of 1 percent for their pensions. However, members of Congress have an accrual rate of 1.7 percent. That means they will retire with greater retirement benefits than those who have defined-benefit plans with lower accrual rates.

"Extremely generous plans, it might be 2 percent," said Dale Smith, president of Pension Plan Professionals in Jacksonville, Fla. His company administers about 360 pension plans in six states for private companies and nonprofit organizations.

By private-sector standards, it's unusual that lawmakers get both a defined-benefit plan and a 401(k) retirement match.

"That's much more generous than what you would normally find in the private sector," said Smith, a veteran pension administrator with more than 40 years of experience.

The taxpayer match of up to 5 percent of a lawmaker's pay is the same as what's offered to federal government workers.

Data from Fidelity Investments, the largest pension investment fund, showed that private-sector workers in 2010 on average set aside 8.2 percent of their pay for their 401(k) plans managed by Fidelity, and that employers on average provided 6 percent matches. This suggests that lawmakers are matched by the taxpayer at about the same rate that employers match their workers. But their fixed pensions give them a considerable boost on top of that.

Like the average American worker, lawmakers elected after 1984 have 6.2 percent of their pay deducted to pay Social Security taxes.

If congressional pensions seem more generous than private-sector ones, it's intentional. They were designed in an era when there was no revolving door between Congress and the trade associations, law firms and lobbying shops that today offer ex-lawmakers big paydays. In the post-World War II era, generous retirement benefits for lawmakers were intended to attract people into politics who could have made more money in the private sector.

- McClatchy-TribuneInformation Services

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