Half of Americans Don’t Have a 401(k) or Pension; Federal Employees Have Both as Part of a 3-Tiered Retirement Plan
Half of Americans Don’t Have a 401(k) or Pension
November 30, 2009U.S. News & World Report - Fewer than half of U.S. workers participate in any kind of employment-based retirement plan. Just 40.4 percent of employees utilized a 401(k) or pension in 2008, down from 41.5 percent in 2007, according to a recent study by the Employee Benefit Research Institute. That translates to about 63.7 million workers who saved for retirement through a workplace program last year, considerably below the 67.1 million employees who participated in 2000.
Part of the problem is that only 50.6 percent of Americans work for an employer that sponsors a retirement savings plan. But even among full-time workers between the ages of 21 and 64, the group most likely to be offered a retirement plan at work, just 54.8 percent utilized the retirement account or pension plan, down from 55.3 percent in 2007.
Significantly more public-sector employees (75 percent) participated in a retirement plan than private-sector workers (41 percent). And employees on the verge of retirement between the ages of 55 and 64 participated in higher numbers (55 percent) than young workers age 21 to 24 (19 percent). Among large employers with 1,000 or more workers, 56 percent were saving for retirement through a workplace plan, compared to 16 percent at companies with 10 or fewer employees.
That leaves 78 million Americans who work for an employer or union that did not sponsor a retirement plan and 94.1 million workers who did not participate in a plan, the study found. Craig Copeland, a senior research associate for EBRI and author of the study, says additional decreases in retirement plan participation are possible in 2010.
The continued freezing of traditional pensions and shift to self-directed 401(k) retirement plans may continue to diminish the use of retirement savings plans, he writes. But the growing incidence of companies automatically enrolling workers in 401(k) plans unless they opt out could contribute to retirement account participation remaining near the level it is now.
71% Believe Government Workers Get Better Pensions Than Those In Private Sector
March 4, 2011Rasmussen Reports - Most voters believe those who work for the government get better retirement benefits than those who work for private companies and also think it’s unlikely their state can afford the benefits given to state workers.
A new Rasmussen Reports national telephone survey finds that 71% of Likely U. S. Voters feel that, generally speaking, government workers get better pensions than private sector workers. Only 14% disagree, while slightly more (15%) are not sure. (To see survey question wording, click here.)
However, just 32% of all voters say it’s at least somewhat likely that their state will be able to afford all the pension benefits it has promised to state workers while 56% say it’s not likely. Those figures include 8% who say it is Very Likely and 16% who say it is Not At All Likely.
Voters strongly believe that government workers should wait until around age 65 to begin collecting full pension benefits. If someone joins the police force at age 20 and stays for 25 years, only 28% believe that person should receive a full pension for life at age 45. Sixty-one percent (61%) think they should find another job and wait until they retire at around age 65 to receive the full pension from their police work.
Similarly, if someone becomes a teacher right out of college and stays for 30 years until they retire, just 36% say they should receive their full pension for life at that time. Fifty-six percent (56%), however, say they should find another job and wait until they retire around age 65 to get their full teaching pension.
Most Americans continue to believe government workers also have more job security than those in the private sector and that they don’t work as hard as private sector workers.
The survey of 1,000 Likely Voters was conducted on March 2-3, 2011 by Rasmussen Reports. The margin of sampling error is +/- 3 percentage points with a 95% level of confidence. Field work for all Rasmussen Reports surveys is conducted by Pulse Opinion Research, LLC. See methodology.
Sixty-five percent (65%) of government employees believe that their pensions are better than those of private sector workers, a view shared by 77% of those employed by a private company.
Perhaps not surprisingly since most unionized public employees are aligned with the Democratic Party, a plurality (48%) of Democrats say their state is at least somewhat likely to be able to meet promised pension benefits. Sixty-nine percent (69%) of Republicans and 65% of voters not affiliated with either major party say that’s unlikely.
Governors in Wisconsin and New Jersey, battling large budget deficits, are at the forefront of efforts around the country to get unionized state employees to pay more for their health and pension benefits. In some states, these employees pay little or nothing toward those benefits, while nearly all private sector employees have sizable sums deducted from their paychecks for such benefits.
Male and female voters are in general agreement when it comes to the timing of police pensions, but women are more inclined to favor early benefits for teachers than men are.
Mainstream voters feel much more strongly than those in the Political Class that government workers have better pension benefits. Yet while 64% of Political Class voters think it’s likely that their state can afford the pension benefits promised to state workers, 70% of those in the Mainstream disagree.
Seventy-eight percent (78%) of all voters say they have followed recent news stories about pension plans provided for government employees, with 50% who say they are following Very Closely.
Thirty-six percent (36%) of voters nationwide think that in their state the average public employee earns more than the average private sector worker. Twenty-one percent (21%) say the government employee earns less, while 20% think their pay is about the same. Twenty-three percent (23%) are not sure.
Most Wisconsin voters oppose efforts to weaken collective bargaining rights for union workers but a plurality are supportive of significant pay cuts for state workers. As Governor Scott Walker and public employee unions battle in the court of public opinion, Wisconsin voters continue to see spending cuts as the proper path to solving the state’s budgetary woes.
How Government Pensions are Robbing You
Federal, state and local employees' pensions are so lavish, shrinking them to what private employers provide could cut your tax bill by 8%.Originally Published on October 1, 1994
MONEY Magazine – The gaps between the princely pensions that public employees often collect and what the rest of us get are so astounding that they seem to have been exaggerated by a task force of bureaucrat-bashing Limbaughites.
Read these numbers and -- unless you're a public servant yourself -- seethe:
- A state or local government worker earning $35,000 a year with 30 years on the job who retires at age 65 can expect an annual pension of about $18,000, according to the Employee Benefit Research Institute of Washington, D.C. For comparable federal employees, the pension figure runs as high as $19,700. But a similar private-sector worker would get only about $10,000 a year, or as much as 49% less.
- State governments on average spend 14.3% of payroll on pensions; for local governments it's 17.5%, and at the federal level it's a Beltway-size 25% of payroll, according to the U.S. Office of Personnel Management. (Despite a 1983 law intended to reform federal pensions, the OPM expects that 25% to grow to 40% by 2020.) As a reality check, however, private companies with pensions spend only 3.6% of payroll on such plans, on average, according to a 1991 study by Greenwich Associates, a financial consulting and research group in Greenwich, Conn.
- Moreover, many government workers enjoy two perks that almost no private employer could afford to offer. One is "spiking," a questionable practice that has been raising strong reactions around the country, as the newspaper clips on pages 138 and 139 attest. Spiking allows state and local employees to load up on pension credits at the end of their careers in order to inflate their pensions. Sometimes spiking actually manages to let them retire with higher incomes than they earned while working. The other retirement bennie, handed out by the federal government and most state and local governments, is an annual cost-of-living adjustment, which immunizes pensions from the ravages of inflation. According to Hastings Keith, co-chairman of the National Committee on Public Employee Pension Systems in Washington, D.C., $19 billion -- more than half of the total annual cost of federal civil service pensions -- pays for COLAs alone.
Money calculates that if government pensions were cut to the same level as the average for private industry, taxpayers would have saved $56 billion last year, enough to cut individual federal, state and local income taxes by almost 8%.
As these ballooning pensions continue to swell, they'll likely lead to cuts in necessary government services that your taxes pay for.
"Pension promises get made to employees, then become part of the general budget. That in turn narrows what you can spend on absolutely everything else, from getting potholes filled to keeping fire stations open," says Terry Clark, a University of Chicago professor of sociology.The upshot: Federal, state and municipal governments, unwilling or unable to keep their pension promises by adding the required amount of money each year, are currently underfunded by a monumental $1.8 trillion. That's more than triple the $586 billion in individual income taxes collected last year by the Internal Revenue Service. By comparison, the far more publicized shortfall in corporate pension funding is a relatively tiny $53 billion. Warns John Erlenborn, a Washington, D.C. attorney and pension specialist who is a former Republican representative from Illinois:
"By the third decade in the 21st century, the public-pension crisis will be much, much greater than the savings and loan bailout. In fact, this one could be several orders of magnitude larger."Comparing public and private pensions helps explain how the public obligation has turned into a monster. The differences fall under two broad headings: overcoverage and underfunding.
The ungodly details: The pampered civil servant
The blessing of a pension is available to just about every federal, state and local employee. By contrast, fewer than 40% of people employed in private industry work for firms that offer pension plans, according to data collected by the Employee Benefits Research Institute in Washington, D.C. The public pensions, in turn, represent a generous percentage of the public employee's increasingly superior pay.
According to the U.S. Commerce Department, in 1993 the average private worker received a salary of $28,907; for state and local government employees the figure was $30,039 and for the feds, a relatively handsome $35,690.
Furthermore, the bipartisan American Legislative Exchange Council, an organization of state legislators in Belleville, Ill., reports that state and local government employees' compensation rose an inflation-adjusted 14.6% during the '80s, the latest period for which figures are available, compared with just 2.4% for private-sector workers. In the past three years federal -- wages increased by an average of roughly 6.2% a year, vs. 3.9% for private workers, according to the U.S. Bureau of Economic Analysis. In August, President Clinton announced that federal white-collar employees would get a pay increase averaging 2.6% next year. Consider the powerful leveraging effect of this higher pay plus the more generous formulas used to calculate public pensions.
Federal Employees Retirement System (FERS)
According to the Bureau of Economic Analysis for 2008, the average federal employee made $79,197 [the average private sector employee made $49,935]. The pension for the average employee can be calculated as follows:
$79,197 x 30 Years x 1% = $23,759
$79,197 x 40 Years x 1% = $31,678
$79,197 x 40 Years x 1% = $31,678
Understanding the FERS Retirement
When we talk about your FERS Retirement, we're really talking about several different benefits. FERS (Federal Employees Retirement System) has three main components:
- Basic FERS Pension
- Social Security
- Thrift Savings Plan (TSP)
As a FERS, you have a chance to take a more active role in managing your own retirement than CSRS do. But, that means you need to stay up-to-date on your benefits.
Here are some important things you need to know about each part of your FERS retirement...
Reductions to Your FERS Pension
There are some choices you can make that will reduce the amount of your FERS pension:
- Retiring Before Age 62 with MRA+10If you retire before age 62 on an Early FERS Retirement (MRA+10), your pension will be reduced. Your FERS pension will be PERMANENTLY reduced by 5% for every year you are under age 62. Click here to see an example of this reduction and how it might affect you
- Survivor BenefitsYour FERS Pension could also be reduced if you choose survivor benefits. Will my survivor still get my pension when I die?
Thrift Savings Plan for FERSThe Thrift Savings Plan (TSP) is a special account for Federal Employees. The TSP was created as part of the Federal Employees Retirement System in 1986. Most government employees (FERS and CSRS) are eligible for the TSP -- even those hired before it was created.
The TSP allows you to save pre-tax dollars in a special personal account. You can choose how to invest those dollars -- although your choices are limited.
With your FERS retirement pension and Social Security, you will receive fixed amounts. But with your TSP, the amount you receive depends on how much you put in and how well you managed the money.
Your TSP contributions are optional and separate from your FERS pension.
You may also be able to get your Federal Agency [taxpayers] to contribute money to your TSP. Click here to learn more about the match the government gives FERS employees.Social Security for FERSEmployees covered under the Federal Employee Retirement System (FERS) are typically eligible to receive Social Security benefits when they retire. Every pay period, the Federal Government takes out 6.2% of your basic pay to put towards Social Security. But just like your FERS pension, your Social Security benefit is not based on your contributions - it is based on other factors.
According to the U.S. Social Security Administration, the Social Security taxes you and other workers pay into the system are used to pay for Social Security benefits.
You pay Social Security taxes on your earnings up to a certain amount. That amount increases each year to keep pace with wages. In 2011, that amount is $106,800.
You pay Medicare taxes on all of your wages or net earnings from self-employment. These taxes are used for Medicare coverage.
| If you work for someone else | 2011 Social Security tax | Medicare tax |
|---|---|---|
| You pay | 4.2%* | 1.45% |
| Your employer pays | 6.2% | 1.45% |
| If you are self-employed | ||
| You pay | 10.4% | 2.9% |
Currently, U.S. citizens cannot collect Social Security benefits until age 62. The maximum Social Security benefit is $23,500 per individual.
* The employee contribution was temporary lowered from 6.2% to 4.2% on January 1, 2011.
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84% of state and local employees retain defined-benefit pensions, compared to 21% of private sector workers.Low-wage public-sector workers also had better access to retirement plans: 74% were eligible, compared with 40% in the private sector. - The Public Sector “Haves” Get Richer Benefits Too…, The Swine Line, July 28, 2010
Having public pensions being so superior and far better than private retirement savings — and the inevitable backlash this would produce — is one of the unavoidable adjustments similar to falling house prices. This huge gap of public employees being so much better compensated than private employees became visible about a year ago even in just ordinary news reports in the papers, for those that read widely. Just like falling house prices, this will be adjusted, sometimes by drastic action (similar to a foreclosure being drastic). The bottom line is that taxpayers cannot be expected to make public employees far more comfortable than themselves. - Hal Horvath, Pension Envy, Pension Crisis, On Point Radio, July 28, 2010
