Government Pension ‘Millionaires’ Outearn Private Sector

A private sector worker would have to retire with a 401(k) balance of $768,940 to match the retirement income of an average career state government employee.

That is one of the key findings of a new study by Andrew Biggs, a pension and Social Security expert at the American Enterprise Institute, a free-market oriented think tank.

The study compared total retirement income for full-career state employees, including both pensions and Social Security income (where applicable) among the 50 states, but more critically in relation to career private-sector workers, and found an inequitable distribution of income in favor of government employees.

“Full-career public employees retiring today … receive pension benefits that place them among the highest-income retirees in their states,” Biggs writes.

A second key inequity Biggs found was between state employees of varying career lengths, with benefits calculated in a way that heavily advantages career state employees.

Thus, as a result of policies such as lengthy vesting periods, “shorter-term public employees greatly subsidize the generous benefits received by full-career government workers,” he writes.

But the focus of Biggs’ study is the gap between state workers and the private-sector workers who, directly or indirectly, fund their generous retirement income benefits.

That gap was considerable in that Biggs found that “an average full-career state government employee has a combined pension and Social Security income higher than 72% of full-time employees working in that state”—based on the most recent data and for the average state.

Those numbers skew much higher for states like Oregon, where state employee benefits exceed that of 90% of nongovernment workers. West Virginia, California and Nevada were close behind in the high retirement-income percentile inhabited by state employees.

Biggs emphasizes that his estimates are conservatively calculated because they exclude potential sources of additional income for government workers, such as retiree health coverage. He notes for example that California’s own Department of Human Resources advertises that employees can expect a half-million dollars in health benefits over retirement.

Calculating a present value of lifetime retirement benefits, the pension expert found that average career employees in eight states were pension “millionaires.” Nevada led the pack with its average full-career employee receiving more than $1.3 million in retirement benefits, with Alaska, California, Colorado and Oregon state workers exceeding $1.2 million.