Public employees trade salary for benefits

Griffin declines to give specifics about his retirement income. But after working 35 years with the state, he would normally expect to collect about 77 percent of his salary, plus Social Security.

“It was a very good system. Let me put it that way,” Griffin said. His wife’s pension after 31 years in the private sector is “minuscule” by comparison, he said, although she also has savings in a 401(k) plan she hasn’t tapped.

Historically, such guaranteed, well-provisioned retirement incomes have been viewed as the reward for police officers, firefighters and other government workers whose jobs are lower-paying and possibly more dangerous than those of their private counterparts.

But these days, public pensions are both objects of envy and political controversy.

State and local governments are having to cut services or raise taxes in their struggle to keep up with twin budget and pension deficits brought on by the recession.

Some people in the private sector — many of whom no longer have traditional pensions through their jobs — bristle at helping pay for rising pension costs for public employees.

“In an economy like this, I think every employee has to be accountable,” said John Sherman, head of the Fulton County Taxpayers Foundation. The group has sued the city of Atlanta, arguing that city officials improperly enriched firefighters’ pension benefits in 2005.

The city is now struggling to patch employee pension plans that are $1.5 billion under water.

Some researchers say public employees’ retirement benefits are generally better than benefits accorded to their private-sector counterparts, but they’re still paid less once differences in education, employees’ pension contributions and other factors are considered.

In a paper last year, University of Wisconsin economics and labor relations professors Keith Bender and John Heywood said state and local government employees’ average pay is higher because they are twice as likely to have college degrees. About 48 percent have college or advanced degrees, vs. 23 percent in the private sector, they said.

However, government employees were paid about 12 percent less than private-sector workers with similar education and experience, they said.

The pay disadvantage for state and local government workers drops to about 7 percent once their larger pension and other benefits are accounted for, the researchers estimated.

“I could have made a lot more money in the private sector,” Griffin said. When he first went to work for the state DOT as a mechanic in 1970, for $342 a month, auto dealers were paying mechanics about twice as much, he said.

But he stayed with the agency partly because of its health, retirement and vacation benefits, he added.

Part of his paycheck went toward both the state pension plan and Social Security, he said.

Roughly 70 percent of public employees remain in traditional pension plans. Most of those plans do pay higher retirement benefits than their private counterparts, experts say.

But government workers also pay for a large share of their higher benefits through payroll deductions.

On average, private and public employers contribute roughly the same percentage of payroll — 8 percent vs. 7 percent — toward their workers’ pension plans, according to the Center for Retirement Research at Boston College.

The big difference is that state and local government employees also typically contribute 5 percent of their pay to their pension plans, while private-sector employees contribute nothing, the researchers said. In some local government plans, the contribution is increasing: DeKalb County employees, for example, began paying 8.4 percent this year.

Meanwhile, droves of private employers have dropped or frozen traditional pensions, opting for cheaper 401(k)-style plans that shift more of the costs and risks to workers.

Private-sector employees with 401(k) retirement plans typically set aside 6 percent of their pay while their companies chip in half as much, according to the Boston College study.

Workers’ participation in such plans is voluntary, however. Experts say most people don’t save enough, make poor investment choices and face an additional risk that people in traditional pensions don’t have — outliving their assets.

Nevertheless, faced with rising pension costs, more state and local governments are following the lead of private employers by freezing their pension plans or cutting retirement costs in other ways.

The Employees’ Retirement System of Georgia, which pays Griffin’s retirement benefits, switched to a hybrid plan in 2009 that cuts traditional pension benefits in half for new hires. They also get matching contributions toward a 401(k)-style plan.

Atlanta actuary Clark Weeks believes such moves are generally ill-advised and amount to an experiment with employees’ future retirements.

Several of his clients recently ditched plans to freeze their traditional pension plans after realizing there would be little savings, he said.

Most governments’ pension problems eventually will resolve themselves, he said, as long as they keep up with required contributions to their plans and investment returns go back to normal levels over the long run.

“This is the first year in six or seven that I’m probably going to all my clients with good news,” he said.

Public-sector vs. private-sector employees

Tumult over state and local government budget deficits has spawned widespread complaints that government workers are too well-paid. But some studies show that they’re paid less for comparable jobs.

* Pay compared to private sector, adjusted for differences in education levels and other factors.

** Pay comparison also adjusted for differences in benefit levels.

Source: 2010 study by University of Wisconsin economists Keith Bender and John Heywood, for the National Institute on Retirement Security and the Center for State and Local Government Excellence