In Alameda County, Calif., according to reports filed with the House Pension Task Force a few years ago, the public employe pension system was so generous that someone whose final salary was $13,200 a year could get over $16,000 in combined Alameda County pensions and Social Security benefits when he retired.
Of course, he would have to be 65, have put in 30 years of service and have a wife who also was of retirement age.
But assuming he met these conditions, the county would pay them about $10,300 a year in pension from its own funds. Since county employes also are enrolled in Social Security, he also would have received over $6,000 a year for himself and his wife in Social Security benefits - plus Medicare. Not bad.
Last year, under the U.S. Civil Service Retirement system, the average pension for all newly retiring employes who had 30 years of service and were retiring at age 55, was $11,400. That's just the average for all new retirees meeting these conditions. Lots got much more.
These two examples of public pension benefits illustrate what some view as the lush side of the public pension picture.
There is not-so-lush side, however, According to Russ Mueller of the Pension Task Force, at least 1 million state and local government employes are covered by no system of retirement benefits at all, neither a state-local plan nor Social Security.Unless things change, they'll never get a pension.
Morever, said Rovert Kalman of the American Federation of State, County and Municipal Employees, "you're talking about the 30-year-worker but he's not typical.
"There is considerable mobility" in the state-and-local government labor force. Many people, he said, simply don't work long enough in any one public job to earn any public pension. Probabl "only a third of the workers will ever vest," he said. So millions more will be cut out.
The sharply contrasting situations of different groups of public employes, said Mueller, may be summarized as follows:
"We've got a pension elite U.S. military employes, and long-service, high-paid state, local and federal employes" do extremely well out of most current public pension systems. In the military they can retire after 20 years at half pay, in the U.S. Civil Service at age 55 after 30 years with a pension equal to about 56 percent of pay in their high-three years. Most local-state police and fire systems also call for retirement after 20 years at half pay.
But if you're low paid, with relatively short service, you don't do so well. You may do very poorly. "We have a pension elite and on the other hand, people who fall through the cracks," Mueller said.
One theme is common for all federal and state-local pension systems. Their financial burdens are rising as the population ages, the retirement age drops well below the 62 or 65 that is normal in private employment, and the systems "mature." Maturing" means that systems set up in the 1940s, 1950s or 1960s haven't had many retirees until now, so they haven't had to pay out too much. But as those workers who got in a generation ago reach 55 and 60, the burdens will start getting massively heavier. Systems that have been operating on a "pay-as-you-go" basis, essentially paying benefits out of current city or state operating budgets, will have great difficulties meeting obligations without massive tax increases or cutbacks of other services. They may choose instead to cut back on pension promises.
All told in the United States today, there are about 28 million federal government employes, 21 million persons in the armed forces and 125 million state and local employes (full-and part-time).
U.S. Employes: Virtually all the civilian U.S. employes are covered by Civil Service pension systems (there are a numberof small ones as well as the big U.S. Civil Service Retirement System. The civilian employes contribute 7 percent of salary toward the retirement system. If they leave and opt out, they can get their money back. Most do.
In order to vest in any benefits, an employe must work for the government for at least five years, but with only five years of service, he must wait until 62 to get benefits. More normally, an employe would retire at age 55 after 30 years of service and get a pension equal to 56 percent of his three-year, high-average pay. All told at the end of 1977, about 1.1 million persons were on the benefits rolls, averaging $654 a month ($7,848 a year) but for persons retiring in 1977 after 30 years, the average was about $11,400. There were also about 400,000 survivors on the rolls.
Total payout for retirement benefits was $9.7 billion. Civil Service retirement includes some very desirable features for employes;
The possibility of early retirement, age 55 or in some cases younger.
A high benefit calculation, equal to what an employe in private industry would get if he got Social Security and a good private pension as well.
If the Civil Service employe stays 40 years, the normal work-span in private idustry, he'd end up with about 75 percent of this three-year-high-pay.
Automatic cost-of-living indexing after retirement.
And the taxing power of Uncle Sam to pay most of the bills for the system.
Although the idea that "employes pay half" has become commonplace, in fact employes pay only 7 percent of their pay to support the system, while the United States at present is kicking in 23 cents on each payroll dollar. By 2000, rising benefits, the aging of the population and longer life-spans will up the U.S. contribution to 35 cents on each dollar.By law the government alone must pay for virtually all new benefit improvements, including CPI boosts.
Armed Forces: All members of the armed forces are covered by Social Security, to which they contribute, and by military pensions to which they don't. The military pension doesn't vest until 20 years of service are put it, but then you can retire regardless of age at a pension equal to 50 percent of base bay. Some retire at 39 or 40. Social Security benefits, of course, don't kick in until 62 or 65. A person leaving the armed services after 30 years would get a military pension equal to 75 percent of high-year base pay. At 62 or 65, as he chose, he'd get Social Security also, so he might end up with more than 100 percent of base pay. Military pensions to about 1.2 million persons cost $9.2 million last year. Like Civil Service pensions, they are fully indexed, they costs are rising sharply but the U.S. taxing power stands behind them. This system is extremely costly because of early retirement, and a presidential commission in April recommended eventually requiring most service personnel to wait until 55 or 60 to start drawing benefits.
State and Local Government: This is the least uniform and most confusing system of benefits. Of 12.5 million total employes. Mueller estimates about 1 million or so arent't covered by any benefit system at all.
Another million or so have only Social Security coverage. Perhaps 3 million or so are covered by both Social Security, to which they contribut, and by state-local government plans, some of which are contributory while others aren't.
Figures compiled by different agencies of government are highly disperate, but it appears that state local systems had a net income of $25 billion if fiscal 1977, of which a fifth came from employe contributions, half from state-local government contributions and the rest from investment earnings. Payout was $9 billion to $10 billion. Total assets were about $130 billion. According to the Census Bureau, the average monthly benefit for 2.3 million beneficiaries was $298, but the Social Security Administration put the figure at $348, which was $4.185 a year. This doesn't include Social Security benefits received by retirees.
With more than 6,000 systems of one form or another, conditions varied wildly. According to the Pension Task Force survey, most systems allowed retirement at 60 or 65 with less than 30 years of service, but in most cases the employe could retire at 50 or 55 if he had at least 30 years.
Police and firement generally were allowed retirement on half pay after 20 years, sometimes with the added requirement that the worker reach age 50. Most of the plans called for benefits at 50 to 65 percent of high earnings after 30 years, but some were substantially higher. Where Social Security coverage was afforded also, it wasn't uncommon for total benefits to exceed 100 percent in Alameda.
The task force estimated that under existing formulas, half of all covered employes retiring after 30 years service would end up with retirement pensions exceeding 100 percent of net pre-retirement earnings.
Most state-local plans also had some forms of CPI adjustment, but in may cases "capped" at some percent a year (perhaps 2 or 3 percent) or were done on an ad hoc basis - not nearly as good for employes as the federal system. The typical plan permits vesting after 10 years, but those covering about one fifth of all employes require more than 10 years or impose age requirements. These don't meet the standards of federal law that are applicable to private plans.
According to Mueller and others, financial weakness and lack of sound actuarial practices of some type are among the worst faults of existing plans.
About a quarter of the plans hadn't had an actuarial valuation in at least 10 years, if ever. Many published no information on plan holdings or financial condition, or in some cases even on benefits. Despite rising benefit requirements, many plans appeared to be severly underfunded, and 17 percent were operating on a pay-as-you-go basis. The report said, "For all state and local public pension plans, the average ratio of plan assets to accrued liability is estimated to be 45 to 50 percent . . . a total unfunded accrued liability of between $150 billion and $175 billion for 1975."
Using the phrase "financial time bombs," virtually everyone consulted agreed that many state-and local plans face "serious financial problems," as Kalman and Michael T. Leibig, an associate put it, if they don't sraighten house soon.
In the longer run, however, aside from providing reasonable coverage for the uncovered, all public systems have the same problem. Under the federal systems and many state-local plans, benefits are much more widespread and better than you could normally obtain in private employment, and retirement ages are earlier. Someone is going to have to pay - or change the benefit structure.