Economics, Entitlements

How Generous Are Federal Employee Pensions?

USA Today reports that “retirement programs for former federal workers—civilian and military—are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security’s.” USA Today’s figures include both pension and retiree health costs and are inclusive of military programs, so it is a broad figure. Nevertheless, it raises an interesting question: how did retirement costs for a small segment of the population grow to rival Social Security, a program designed to cover nearly all Americans? One big reason is that federal pension benefits are simply very generous relative to typical private sector plans.

How generous? To check, I took a stylized worker and ran his annual salary through both the federal pension programs and a typical plan offered to private sector employees to see the difference in how much they would end up with at retirement. Since federal workers receive higher salaries than the average private sector worker (more on that here) I assumed the employee earned 150 percent of the average wage each year; that would put his earnings this year at a bit over $60,000. I assumed he entered the workforce at age 21 and worked until age 65; in reality, most people take some time out of the workforce and most federal employees have held other jobs, but for these purposes that doesn’t matter too much.

Most current federal employees are covered by two pension plans: a defined benefit (DB) program known as the Federal Employees Retirement System (FERS) and a defined contribution (DC) program called the Thrift Savings Plan (TSP). For a federal employee who retires at age 62 or older and has 20 or more years of service, his basic FERS benefit will equal 1.1 percent of his highest 3 years of average earnings, multiplied by his years of service. For FERS, most federal employees contribute 0.85 percent of pay, with the remaining costs covered by the government. The Thrift Savings Plan functions similarly to a private sector 401(k) plan. Federal employers contribute 1 percent of worker wages to the TSP regardless of whether individuals participate. In addition, the federal government matches employee contributions $1.00 per $1.00 for the first 3 percent of earnings contributed and $.50 per $1.00 for the next 2 percent of earnings. A federal employee contributing 5 percent of earnings to the TSP would receive a total employer contribution of 5 percent of earnings. Most current federal employees also participate in the Social Security program.

In the private sector, a typical pension plan today is a defined contribution 401(k) program, which is generally funded with a combination of worker contributions and employer matches. The most common matching formula is $.50 per $1.00 of contributions, up to the first 6 percent of pay. Around one-third of employers offering matching 401(k) plans use this approach, so we’ll follow it here. DB plans still exist in the private sector, but they’re shrinking fast: only 13 of the Fortune 100 companies now offer a traditional DB plan to newly hired employees. Some offer so-called “hybrid plans”—which are themselves shrinking—while the remainder offer 401(k) plans.

For both 401(k)s and the TSP, we need to make the risk of the benefits they offer comparable to the guaranteed benefits from a defined benefit plan; otherwise, investments in riskier assets like stocks will seem like “free money.” To do that, I follow the Congressional Budget Office’s approach of assuming that DC plans invest in government bonds, which I assume to have a 4 percent yield. That’s higher than the roughly 2.5 percent Treasury securities are currently paying but lower than the historical average, so you can adjust up or down as you see fit. Once people retire, I convert their DC accounts to a joint and survivor annuity using rates published by the TSP. For both workers, I assume they contribute enough to receive the maximum employer match to their DC account; but in comparing benefits I use only those generated by the employer match, not from the worker’s own contributions.

In both federal and private sector employment the worker would receive the same annual Social Security benefit of around $21,656. At retirement, the worker’s highest three years of earnings average at $60,368; with an assumed 44 years of service and a 1.1 percent replacement factor, that generates an annual FERS pension of $29,218. In addition, the annuitized value of the employer match to the TSP generates another $6,960 in annual benefits, for a total retirement income of $57,834. In addition, the federal employee would have whatever income his own TSP contributions generated.

The private sector worker would have a Social Security benefit of around $21,656, plus an annuity payment drawn from his employer’s 401(k) contributions of around $4,175 per year. The total retirement income would be around $25,832, plus whatever he received through his own 401(k) contributions. To make things simple, $25,832/$57,834 = around 45 percent, so the private sector worker clearly is receiving far less.

Now, we can haggle about some of these assumptions. Maybe private sector workers who are comparable to federal workers in terms of education or other skills receive more generous pensions. But even if we assume that the employer matches 6 percent of pay rather than the more typical 3 percent, that brings the private pension benefit up to only 51 percent of the federal level. And bear in mind that these percentage differences are reduced by the inclusion of Social Security; if I looked only at employer-provided pension benefits, the private benefit would be only around one-tenth the federal level.

Put it this way: federal employees have a more generous defined contribution pension than most private sector workers, and on top of this they have a defined benefit plan for which they pay less than 1 percent of salaries. State and local workers who participate in Social Security usually have more generous DB plans (a replacement factor of around 1.9 percent of final earnings versus 1 or 1.1 percent for federal employees, according to the Public Plans Database), but they pay far more for their benefits: almost 5 percent of pay versus less than 1 percent for federal employees.

In addition, federal employees are also eligible for retiree health coverage, which is very valuable for early retirees but which in the private sector is shrinking even faster than DB pensions. Based on CBO figures, Jason Richwine and I estimated that eligibility for retiree health coverage is worth around an extra 6 percent of pay for federal workers.

In simple terms, the federal employment package is a great deal for federal employees, and as a former federal employee I was happy to get it. But if you wonder why costs are so high, now you know.

177 thoughts on “How Generous Are Federal Employee Pensions?

  1. The author is trying to say that what we were promised 30 years ago, should now be reconsidered. Maybe when I contract out for services, for let’s say, replacing my roof, I should tell the contractor at the end that he either must pay for the materials out of pocket or that his work was too expensive, eventhough I initially agreed to his/her price, and pay him/her what I feel is reasonable.

    The author also fails to address CEO pay. CEO’s not only get a “golden parachute of millions” even if their company losses money, look at Hewlett Packard for instance, they also get a gracious Defined Benefit and their rates go up, Corning is a good example.

    Instead of the author harping on federal perks, perhaps he should focus his attention on CEO pay and benefits that extremely dwarf federal benefits.

    • Steve, I don’t think I’ve suggested cutting benefits already earned, so what was promised to you will be delivered. But there’s the question of whether going forward federal employees should continue to earn benefits that are significantly more generous than those of the taxpayers who finance them.

      I commented on CEOs elsewhere, where I wondered why federal benefits should be comparable to CEOs rather than to what federal employees might receive if they were to work (as non-CEOs, presumably) in the private sector.

      • Andrew,

        Your analysis and methodolgy are interesting and thought provoking. However, I believe you have greatly missed the mark on the entire subject. Pensions are a reward given to long-term employees for commitment and dedication to an employer, either public or private. The difference between public and private companies is the ultimate goal of management. In the public sector, management is tasked with providing services to the citizenry. There is no profit motive. The pensions are a cost of doing business. In the private sector, the companies are run with a profit motive. The goal is to make money to invest in the company’s operations, pay investors, pay down debt. The better a company is at controlling costs, the more likely it will be to pick up investors seeking a return on their investment. Many of the larger businesses now view the workforce in terms of its cost instead of the value to the business. That is why businesses are outsourcing to less costly parts of the globe. The workforce no longer matters, quality no longer matters.
        It is your argument that Federal, State, and Local employees are a drain on public resources, and should not be rewarded for their years of service. You forget that public servants do not have a choice in who they deal with in performing their duties. We deal with everyone who has business before the government. We do not have a sign at the door that says “Management Reserves the Right to Refuse Service to a Customer.”
        It is articles and analyses such as this that tend to take the human face off of public employees. And it is done strictly for political purposes. When authors, speakers, writers, journalists, etc. talk about the Government Bureaucracy and wasteful government spending, they are talking about their neighbors, friends, relatives and the earnings they take home. These are the same neighbors who suffer as you do.
        Instead of stating how much of a benefit these employees make after 20, 30, 44 years of service and faulting them for it. How about looking at the private sector, and stating how much those employees make after 20, 30, or 44 years and fault the employers for not providing better for the employees who have dedicated their working lives to the cmpany.

  2. All I can say to this is in my years working as a federal employee – stationed in the offices of a prime defense contractor — all you had to do is walk thru the parking lot to see the differences in the older cars parked in the govt row – to those higher end vehicles parked by the defense contractor employees. And how I opted out of our health insurance system due to the higher cost. My husband worked in private industry where they had a far, far superior health insurance plan for our family. Amazing how we turn on one another when the economy sours. My big question or concern here is — I don’t mind giving a little now to help turn things around for ALL of us, but what happens to we feds after our pay / benefit package is torn to shreds when the economy turns back around? Are we going to get all of our pay and retirement plans reinstated? Or will everybody conveniently forget leaving us out in the cold???

  3. Arew you kidding? I will retire from the government in December of this year. As a grade 13, step 10, I will receive $21,000 a year. That’s $1750 monthly. I would NOT call that generous. I have a masters degree in public health and it took me 20 years to get to my $1750 monthly retirement.

    And my TSP? I set asside the majority of that money myself and 16% of my salary per year.

    And now the left insinuates that they want to reduce what I have planned for my retirement for over 20 years?

  4. Totally unrealistic. It is rare for a person to retire with 44 years of service and to use that as comparision. The average is somewhere between 20 – 30 years with a much more reduced pension. Most people see an annuity somewhere between 20 – 30,000 or less. Now professional’s may get higher due to their higher rate of pay. And let’s address the issue of pay, how many people have we had decline jobs because the government does not pay as well as private sector and the amount of people we have lost to the private sector due to pay. The author needs to do better research!

    • Krista, You’re right that 44 years is unrealistic. The problem I was trying to solve was that people will sometimes cite the value of a public pension based on an average of, say, 20 years of service, which may appear modest when people think of their own private pensions, which are usually based on more than 20 years of service. To account for that, I assumed that both workers had a full career in either the public or private sector. I could run a shorter period and compare benefits after that, although I expect that the federal benefits would remain considerably more generous.

  5. Instead of trying to drag down the civilian federal retirement system (which should be separated from the military system – they are not the same) to the lowest common denominator, why aren’t people complaining about the inadequacy of the non-federal retirement plans? There should be more focus on ensuring retirees have an adequate guaranteed income and do not have to worry about the prospect of living in poverty.

    • J. Anthony – you are spot on. Why do they continue to run bogus numbers around and make these “specious” arguments. We all know enough about private sector retirement plans to know this article draws an inacurate conclusion and it leaves the reader with an idea that Gov’t workers all receive as much in retirement as they did when they were on the active payrole. I used the word “specious” because this article, to the uniformed private sector employee believes it is “…1. Having the ring of truth or plausibility but actually fallacious: a specious argument. 2. Deceptively attractive…”.

      Much closer to campaign rehtoric from the “Right” but very scary to a person who has 35 years and is considering retirement in the next 3 years. Maybe I will retire sooner if this crap is believed by the ruling party to save a future for my wife and myself.

  6. The problem with this article is that it completely ignores stock option plans, common in white collar private sector jobs. I would expect that fewer blue collar employees get those types of perks, but with two masters degrees, would never consider myself as part of the blue collar labor pool. As an ex-bank employee, I received a 401k with 5 % matching, and stock options as a part of my incentive plan. My husband received 7% matching, stock options, plus insurance that beats the hell out of anything I now get as a federal employee. If you want to make this argument, you really need to compare apples to apples. I get what I traded in the private sector by moving to the public sector, just concerned no one else does.

    • According to the BLS, around 12% of white collar employees receive stock options, the value of which they now incorporate into their overall measures of employee compensation. These aren’t reflected in this blog post, which is a simple illustration, but would be included in my paper with Jason Richwine on overall federal pay.

  7. Ok I get the private plan of $21656 + $4175 equals $25832, but $29218 + $6960 = $36178 not the $57834 cited by the author, maybe he is using conservative math which is different that normal math. maybe you did not get tested enough in school which is why you got a crappy education? lso when they changed to FERS from civil service the FERS plan was panned as worse than most current defined benifit plans. Now 30 years later as retirement plans go to the wayside in the drive for more profits of course FERS looks better. Why not just screw over all the public workers and cut benifits to them and services to the public and see how many people complain. I want the guy coming to my house to get the burgler or put the fire out to be happy in his job, not disgruntled and just taking it easy.

    • The $57834 is inclusive of Social Security, FERS and TSP; the figures you cite are just FERS and TSP, so that explains the difference.

  8. I’m sure the author failed to mention he retired under the old system and not FERS. I too now 60 years old am looking at retirement and thought FERS would give me a reasonable retirement. At best I will receive after taxes about 16-20% of what I’m now receiving. I spent 10 years at nigh college eating noodles and hotdogs everyday to pay for college. I guess I can do it again. Or I hope I can work until 70. That is if the government doesn’t force me out.

  9. There is an error in paragraph 6…where do you get 44 years of service? Perhaps your calculations are also off. Why not try that again because my salary is near to what is used as an example and both my projected FERS and the SS are half of what you stated. I have over 20 years in federal service and have been underpaid my entire career. That will extend into my retirement also. It is projected to be barely enough to live on without working a part-time job.

    • I haven’t run the numbers, Beth, but I’ve seen some comparisons showing that CSRS and FERS would pay roughly the same benefits. However, I think CSRS is probably a better deal since its benefits are guaranteed while under the FERS/TSP combo you’d have to take some risk with your TSP contributions to get total benefits up to CSRS levels. Both are quite generous by private sector standards, however.

      • Well, you finally got one thing right when you said “you’d have to take some risk with your TSP contributions.” I retired in Jan. 2008 and within 2 months, my TSP account was oblitered to the tune of 40% by your poor private sector cronies on Wall Street who according to you must make a whole lot less money and receive a much reduced retirement benefit. Oh, I forgot AEI is paid to produce Republican/conservative propaganda to support the wealthy few and you did a good job of it. I have numerous friends who are retired from the private sector and I can only wish I was as well off financially as they are. I chose to work for the people of the United States for 20 years in my professional career after 15 years at a university and my friends didn’t. That is OK with me. Their profits and benefits are considerably greater than mine at the expense of those who purchased their products or services, just as you would claim that my salary and benefits were/are paid for at the expense of your tax money. It is all relative Mr. Biggs. That is what free enterprise is all about. Why don’t you compare federal excutives (SES) to Private sector CEOs and see what you come up with? We all pay for them as well one way or another. Oh, but that would be treading on the wealthy few and I know you wouldn’t dare do that.

  10. Well, you have convinced me on only one thing, you should not be publishing articles for public review. I read through your report on our “HIGHER EARNINGS” and the bunk you published there is nearly as ridiculous as the comments you made here.
    For the facts that you seem to be clearly unaware of let’s try the first fact that you falsify – Private sector employees in the top 1/4 of the work force as compared to the top 1/4 of the earnings in the federal/state/city work forces. The earnings per individual versus the number of individuals in the calculation are horribly skewed and misrepresent the statistic. There are ten times as many “CHIEFS” in the mix of the public sector as there are in the private. Of those chiefs, as your report stipulates, the public sector numbers in the Washington D.C. area significantly out scale the private sector as the federal work force there seems to be hired into greater earnings positions and promoted significantly faster than their private sector peers. Yea, that’s the problem – you are focusing on a small sample and thinking that it represents the same model in the rest of the country.
    On the second screw up you seem to have made was the assumption that a worker in the private sector would stick around for 30 years in the same line of work. Granted, many do, but the number of these individuals is significantly off set by the numbers that leave the work force and start their own competitive enterprises falling off the 1000+ workforce map yet making money in factors that are so far off the charts as to make your statistics moot.
    Many of these business startups are the very competition that the larger companies must address in the federal contracting and appropriations systems.
    Bottom line – like most academia – you are ill prepared to speak on a topic that you feel you are the expert in. Your numbers are numbers that a statistician likes to play with because they can be made to state any opinion or position you choose to uphold.
    Now, if you actually want the real statistic, you needed to consider the actual work being done against the relative positions held by the number of people in those positions and the number of those individuals whom you consider need to reflect the various pay groupings according to the locality of those groupings. Take into consideration the concentration of the number of Leaders/Supervisors in the private sector versus that of the public and while you are at it – make an effort to measure the numbers in aggregate of the leadership in the private sector versus the numbers in relatively equal breakouts of the public sector. How many 1000+ businesses have offices in nearly every state of the US let alone in foreign countries, add to that the multiple agencies that have representation in multiple smaller concentrations across hundreds of communities and cities and you quickly find the distribution of your statistics as useless in aggregate as they are in individualistic representations. Using the Washington D.C. area as a comparison for the rest of the country is as blindsided and biased a proposition as the morons in our political system seem to follow and look at where that has gotten them. They couldn’t add two numbers together and get it right if their life depended on it – which right now it does.

  11. Why does the author “assume” 44 years of service. Most FERS employees will retire at the minimum retirement age with 30 years of service. Hence, the formula is 1% per year of service (typically 30% of their high 3 salary). Not 44 x 1.1.

    • As I think I noted elsewhere, the point of assuming 44 years is so that people don’t compare benefits received under a more typical 30-year career with what they will receive after working a full lifetime. (It’s not unusual for males to have 44 years of earnings, though with women it’s much less so.) Over shorter periods the same basic dynamic should hold, though: if I compare what a federal worker receives after 20 or 30 years of service to what a private employee would receive over the same period of work, the federal employee will still receive more.

      • Some quick numbers: I shortened the assumed working career to 30 years to get to something more realistic, but it doesn’t change things very much. Total benefits (SS, FERS, TSP) for the federal employee drop to around $45.5k and total benefits for the private worker (SS, 401(k)) drop to around $23.4k. But the ratio of the two is about the same as before. What this shows is that year-for-year, benefits are simply higher in the federal government than the typical private sector plan.

        • Hey Andrew how many feds do you think make 60k a year?Not as many as you think.I have worked as a fed for 27 years under fers pension,after 30 years i can retire on 1000.00 dollars a month.SSI will be around 1100.00 dollars a month and i can probably count on 600.00 a month from the TSP.All in all that leaves me a little short of your 57,800.00 total.Why don’t you come and find out how much most feds make and how much most feds retirement will be?By the way how much will you earn in retirement??

  12. Sad sad sad! – I feel for those in private (also state gov’t) who are retiring now – it’s like the game where you are told if you do these things, we’ll do our share and you will get the reward but when the time comes for the reward they pull it back and you get nothing even though you a. were loyal and remained in the position for 20 years or more. and b. did your part and contributed your share (in some cases more than your share).

    Shame on those at the top for punishing those who did what they were supposed to do in order to keep the lion’s share.

    As for Feds – since private pensions were pulled back in order to obscenely pay those who were in leadership positions – it is expected that fed civilian employees now have to receive the same treatment. This is a travesty on the American people!

  13. I beg to differ on the rational stated in sentance 3 of Praragraph 2 ” Since federal workers receive higher salaries than the average private sector worker (more on that here) I assumed the employee earned 150 percent of the average wage each year; that would put his earnings this year at a bit over $60,000″.
    A degreed Engineer in the GS11 or 12 paygrade receives approximately 50-80% of the comparable salary earned by civilian counter-parts. I have had difficulty hiring engineers even in this recession due to the lower wage rates.

  14. What most this conversation fails to take into consideration, is that corporate greed has eroded the benefits in the private sector. Unfortunately, this conversation does not apply multi-millionaire executives and stockholders. ‘Cause they make money the old fasioned way, they erode middle class.

  15. It would have been nice if the comparison would have included CSRS annuitants also. More specifically 6C employees who are retired Federal Law enforcement/ Firefighters under the accelerated retirement offered for those in the above catagories.

  16. As a CSRS retireee with 31 years of service and a high three as a GS-11 step 6, in a job requiring a Bachelor’s degree when hired.
    I paid 7% of my paycheck into the CSRS Federal Retirement which I receive. I have 15 quarters of social security credit which I cannot use because of the “Offset” otherwise I could get enough work to amount to the 20 quarters minimum required for a minimal Social Security pension. I also had the maximum allowed deducted from my paycheck and placed in the TSP. My annuity after deductions now amounts to $24,008.
    Remember, we worked for those Social Security “Quarters” which we had to abandon.
    My point is that I paid more for my federal retirement than 1%. You should do a calculation for CSRS too!

  17. If your initial assumptions are wrong then the results will be wrong. I read a OPM report that the average employee only stays in the workforce just over 27 years on average.

    Assumptions are just that! Assumptions! You would know that when you buy a house. How much money should I bring to close on the deal. Best and most honest answer I heard… put every dime you have available to you in your checking account and bring your checkbook and be prepared to walk away. No assumptions here!

  18. I must point out that the TSP portion the government provides is a one time cost; and TSP payments during retirement all come from TSP. Unfortuniately the aurthor did not consider the fact that most federal employees are better educated and remain with the government longer than the average employee. Having said this, yes the federal retirement is better than most private sector retiement for middle class workers. Federal employees, however, give up salary during boom times, and those who do not resiide in high cost areas receive less than those who do, but those dollars are spent to live in those areas. The good thing is, the higher incomes couont toward retirement. This article is just another opinion, and is no better than any of the others. I would hope that after our economy gets back to functioning as it should, we have not discouraged the best and brightest from entering federal service. I do not consider myself one of the best or brightest, but my 36 years of service allowed me to have a say in how our country meets its problems not available anywhere else.

    • In my longer federal pay paper, we do control for education, experience and other factors. Also, in a quick attempt to account for that, in the blog post I looked at how the benefits compared if the private sector worker received an employer contribution to his 401(k) that was twice the average. Even then it didn’t make much difference.

      • But your federal pay paper is filled with assumptions that do not reflect reality. You have worked your paper to get the results that YOU desired that has nothing to do with reality.

  19. I must say that I am extremely suspicious and highly cynical about the convenient ‘timing’ of this hit piece on Federal Retirement pensions and benefits.

    Let’s examine a few facts. According to a report by more than 20 economists, political scientists and other academics at Brown University’s Watson Institute for International Studies, before the wars in Afghanistan and Iraq officially ‘end’, the same U.S. government who is now whining and trying it’s level best to demonize Federal Retirees as a pack of undeserving, free-loading, greedy old geezers is on target to waste at least $3.7 trillion dollars on these fiascos. This same report estimates that the U.S. government has already wasted between $2.3 trillion and $2.7 trillion dollars on these wars.

    I would like to point out that the Bush-Cheney neo-con infested cabal of serial liars deliberately and with premeditated malice aforethought – lied about WMDs in Iraq which they knew did not exist (google the Downing Street Memos for details), lied about connections between Iraq and the mythical Al Qaeda which also did not exist, and even fabricated and greatly exaggerated threats which were revealed to have been completely non-existent. None other than Dick Cheney made several unprecedented personal trips to the CIA headquarters at Langley, Virginia to put pressure on the CIA intelligence gathering people to produce ‘evidence’ to fit the war mongering agenda of the Bush-Cheney neo-con infested White House. Oh, and let’s not all forget the dozens of excellent videos which are available on Youtube that show Bush, Cheney, Rice, Rumsfeld and the other neo-cons deliberately trying to snooker the American people into thinking that Iraq had something to do with the events of 9-11, which all of these criminals later had the gall to deny they ever did. Video tape, however, proves otherwise.

    So, the Brown University report concludes by estimating that all these wars that we were lied into, wars that were started based on false pretenses – will add at least $1.5 trillion dollars to our national debt. This means that the criminal bankers who are carrying that national debt will be tacking on interest payments on top of that $1.5 trillion dollars.

    Does everyone get the picture here? These war mongering, lying, dishonest politicians – who have yet to be held accountable in a court of law for their actions – have helped bring this nation to the absolute brink of total financial collapse by getting our nation involved in multiple wars that we had no business or legal right to start – and now, all of the sleazy politicians in Washington D.C. who were complicit in going along with these wars are scared of the impending financial collapse that they all helped to engineer – and these rats have the gall to now try to insinuate that Federal Employees, who worked their entire careers and who EARNED the benefits that were offered – as a legally justified benefit of employment, are now somehow ‘greedy’ and ‘abusing’ the system and their fellow tax payers?

    A question for Mr. Biggs. What sort of under the table deal did you receive for selling your soul to Satan and churning out this hit piece on Federal retirees – conveniently ‘released’ to coincide with the rats in D.C. who are looking for ways to renege on their promised obligations?

    Hey, I have a grand idea. Let’s confiscate every last dime from Bush, Cheney, Rice, Rumsfeld, Wolfowitz, Perle, Bill Kristol, Faux News Network (Murdoch), Rush Limbaugh, Sean Hannity, Bill O’Reilly, Ann Coulter and the rest of these bought and paid for Judas Goats who helped sell and promote these criminal wars that have bankrupted our nation. Apply THAT money to the debt and leave our earned pension benefits the heck alone.

  20. Well done analysis, Andrew. I’m CSRS near retirement and my wife is FERS. We live in southern California. Your conclusions are rather shocking. I’m happy that we are doing so well but it doesn’t seem like it from our perspective. My observations over many years are that state workers have better pay and benefits than federal workers and that local (city) workers are even better than state workers. The trade off is that local workers are stuck in one city, state workers can move around the state, whereas I can move around the whole country. More flexibility but less pay and benefits. People outside of government in my area seem to be much better paid and to have much larger 401k savings plans despite the fact that DB programs have virtually gone by the wayside since the 1990′s. Once we retire, we’re steeling ourselves to be middle class paupers.

  21. 1. When I started my career with the Federal government in 1980 as an attorney, there was no question that comparable starting salaries, and total compensation packages for attorneys in the types of firms that I would have been qualified and likely to have started at (had I actually tried to get a job in a firm) were about 20% better. Since then, it has only gotten worse. To put it in context: (i) starting salaries for 1st year associates, never mind additonal retirement benefits paid by the firms) were higher than our former General Counsel’s salary (who had decades of experienbe at our agency). Even considering the value of the former GC’s pension (lets say an additional 20%), the GC was making less than entry level attorneys; (ii) I recently asked an attorney who left our agency to work for an industry organization whether, considering all benefits, the Federal package was better than the private. The answer, no suprise, was the private sector – after all, that was the major reason this person left.

    2. One thing I recognize, even if my fellow Federal employees do not: there is no guarantee in the private sector, ultimately, as witnessed by the fall of the major auto companies, Lehman Brothers, Polaroid, Eastman Kodak, Wang, Digital, IBM…Wihtout trying to explain why it is so, it is. I also recognize that most private sector enterprises do not acocmodate faiily issues very well Most Federal workers recognized the trade-off between private sector uncertainty, verus the stability and work/life balance offered by the Federal government and accept the reduction in overall benefits on the long-term. What galls me is that we are taking a snap-shot in time, when the economy is bad and companies, and then comparing that to the voerall life-cylce benefits of the Federal Worker. This does not appear to be a fair comparison, although I’ll admit that to come up with an alternative analytical approach is difficult.

    3. I believe that more benefit would be obtained, in terms of rational discourse, if we could all have a public dialogue as to some possible approaches to evaluate comparability between overall compensation between the public and private sector, including various types of factors to control, to identify all elements of ‘compensation,” (including non-monetary benefits such as the nature of protections accorded workers) and to reflect what I call “cohort” comparability (that is, look at employees entering the workforce by the period in which they entered employment, say, in 5 year periods, 1975-1979, 1980-1984, 1985-1990, etc.

  22. My first reaction is the article and writer are part of the AEI. This right wing, free market, libertarian outfit, partially funded by the Koch Brothers, wants to tear down anything that gets in the way of higher profits. That means no government regulation and oversight. AEI would like to see the middle class reduced to poverty and slave wages.

  23. Here are just a few of the difficulties with the piece by Mr. Biggs, piggy-backed from a USA Today article that itself grossly distorts reality. One: no matter how loud or persistent the counter-arguments, federal employees in comparable jobs with comparable education are underpaid relative to their private sector counterparts. So the fundamental assumption in the article is faulty. Two: the claim that most federal employees are covered by two pension plans is grossly misleading; FERS is a three-segment plan made up of a small (monthly average: $944) annuity, Social Security—to which FERS-covered employees contribute the same 6.2 percent at do private sector workers (a point Mr. Biggs omits)—and a payment from the employee’s Thrift Savings Account (TSP). Third: many federal employees do not get the TSP full match from the government because they are unable to contribute the maximum amount. Fourth: this kind of article reflects a sad and ongoing effort by some in our country to tear down the middle class and a decent retirement that is fundamental to the American dream. Finally, no federal employee should have to apologize for a decent pension in return for a lifetime of service to her or his fellow Americans.

    Colleen M. Kelley
    National President
    National Treasury Employees Union
    Washington, D.C.

    • Thank you Colleen. However, I believe that the many writers, like Mr. Biggs, will continue to publish the same misleading stories, regardless of what the truth may be. It’s a sad day when a political party will go to such lengths to demonize a class of workers for political gain, knowing what they say is a lie.

    • I appreciate Ms. Kelley’s weighing in on this topic. A substantive discussion can help improve public understanding of these important policy issues.

      Regarding Ms. Kelley’s argument that federal workers receive lower salaries, she relies on figures from the President’s Pay Agent, which claims that federal jobs pay less than comparable private sector jobs. The Pay Agent’s methodology has been “severely criticized” by economists, with that quote coming from Alan Krueger, president Obama’s chief economic adviser. Peer-reviewed academic studies over three decades (which I guess does count as “persistent,” in Ms. Kelley’s terms) show that federal employees receive a significant pay premium relative to private sector employees while controlling for education, experience and a range of other factors consistently. Jason Richwine and I show a premium of around 14 percent. We also showed that when the same person shifts into a federal job their salary generally rises and when they leave for the private sector their salary generally falls. The Pay Agent’s numbers are flawed, as we point out in our federal pay study, because unlike the academic research they do not control for education, experience or other factors that influence pay. As the CBO and academic researchers have shown, in any given job, the federal government tends to place employees with less experience and education than the private sector does. It might be the same job, but it’s not the same employee.

      I’m not sure anything important rides on whether we call FERS/TSP two pensions; this may play on public employee unions’ tendency to call only DB plans “pensions” while DC plans like the TSP are something else. In any event, my figures include FERS, TSP and Social Security for federal employees and Social Security and a stylized 401(k) plan for private sector workers.

      I also don’t think a lot rides on my failing to mention that federal employees contribute to Social Security, since I also failed to mention that private sector workers do. I guess to be technically precise my benefit figures should have counted only the half of Social Security benefits that are financed by employer contributions, since that’s how I looked at other pensions. Doing so, however, would make federal benefits seem MORE generous relative to a typical private sector worker’s.

      Ms. Kelley points out that not all federal employees receive the full employer match to the TSP. Of course, not all private sector employees would receive the full employer match either. This is because the private sector generally matches at a lower rate, meaning that you would have to contribute more out of pocket to receive the full match.

      Substantively, I don’t see anything here that really shifts the debate.

      Big picture, public employee unions at both the state and the federal level have characterized criticisms of public employee compensation as an “attack on the middle class,” which I guess is designed to convince private sector middle class workers — that is, the ones whose taxes help pay for the generous public sector retirement benefits I outlined — that somehow they’re the ones being attacked. This is silly. The “attack on the middle class” claim is implausible numerically, since most middle class workers aren’t federal employees, and to the degree that public employee compensation is being attacked it’s because it’s perceived as excessive, not because its beneficiaries happen to be middle class.

      • wow. how about hearing from someone who has worked paycheck to paycheck for 30 years. i never earned $60K a year. the year i killed myself signing the overtime list since my kid was going to college, i managed to hit $50K which ended up kicking me to a higher tax bracket and hurting us on the FAFSA. my ‘generous’ pension is 922 net, which falls about $350 short of subsistence level for the area where i live. i don’t know what planet you’re on, but you could have made an effort to interview people in the federal sector, the majority of whom work at a GS5 level. you don’t “see” anything you don’t want to, substantively. that bias is glaringly clear.

      • Mr. Biggs, How about if you just listen to a bit of reality who has worked in the Federal Government for 25 years. You can throw out all of the assumptions that you want in your arguements, they are as worthless as the paper they are written on. It’s what is happening on the street in real life that matters.

        I happen to be in touch with many of my college friends who I graduated with. I attend CPE’s with them to maintain my certification. The difference is that I pay for my CPE courses and they get theirs paid for by their companies. For at least 15 years I have earned about half the salaries of my former classmates. Why is that? It is because we are underpaid.

        Do they work more hours than me? No way! I generally work a 10 hour day and working in the office on a Saturday is not the least bit unusual. Of course, I don’t get paid for any work beyond 40 hours. We have so much work assigned that it is the only way to keep up with my work load. It is also not unusual to see 2/3′s of the office staff in the office on a Saturday. My managers are forever sending emails out late at night, on weekends and even holidays. Why? Because there is a job to be done and we believe in the work that we do is important to the survival of our Country and the people we serve.

        Recently, one of my classmates asked me about coming to work for the Government and he was shocked at what he learned. If he came in as a Senior Agent, his salary would be a little less than $90,000 per year. He answer was “Oh my God, I couldn’t take a 60% pay cut”. He was also amazed that I pay an average of 30% of the cost of my health care not to mention the plan participants share of the expenses. So far my out of pocket expenses not counting my health care premiums are $3,600. Great health care plan huh!

        My sister who happens to be a physician left the VA two years ago. She has two board certifications as a specialist physician and was paid $105,000 per year at the VA. She left to go into private practice and her starting salary in private practice as a specialist was $180,000. and in two years her salary has gone up including bonuses about $40,000 per year. Her job in private practice was exactly the same. The biggest difference is that in private practice, she sees fewer patients and she works in a much more modern environment with better equipment. If she needed tools while working for the VA she had to beg for it and perhaps they will include it in next years budget. In her private practice, if she needs it, they get it.

        As for pensions, my daughter’s God Father works at an Oil Refinery. He does not contribute to his pension at all. He also has a stock option plan. For every $1 he buys in US Savings bonds, the company matches it with $1 in company stock up to a maximum of 5% if salary. He pays 10% towards the cost of his health care insurance and amazingly, his health plan is substantially better. doesn’t have co-pays. Of course, with his high school diploma, his salary is right around mine.

        My brother supervises about 90 people with his high school education in the Building Trades. His salary exceeds the salaries of every Federal Executive. My commissioner supervised 90,000 people.

        So please tell me again how well paid I am. How great the Federal Benefits are. How wonderful our working conditions are. Your Assumptions have made an A$$ of you, not me! I become eligible for early retirement next year. I will be retiring because I have multiple job offers in the private sector that will double my salary.

        My biggest career mistake? It was not leaving the Government when I had the opportunity 20 years ago. I regret staying.

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