I testified yesterday at a House Oversight Committee hearing on federal employee retirement benefits. Republicans in Congress have proposed increasing employee pension contributions and reducing future benefits.
My approach was to compare the benefits that a typical federal worker would receive at retirement versus what a private sector worker with the same salary might expect to receive. Federal employees are eligible for Social Security benefits, the defined contribution Thrift Savings Plan (TSP), and the defined benefit Federal Employee Retirement System (FERS). Typical private sector workers rely mostly on Social Security and a defined contribution 401(k) plan.
Let’s take a federal worker retiring at age 62 after 28 years of service with a final salary of $78,650. The table below shows what he could expect to receive as a federal worker versus what he might get under a typical private sector plan.
| Annual pension benefits at age 62 | ||
| Federal | Private | |
| Defined benefit | $23,710 | $ - |
| Defined contribution | $8,610 | $7,044 |
| Social Security | $18,264 | $18,264 |
| Total | $50,583 | $25,308 |
The short story: federal employees can expect roughly double the retirement benefits as similar private sector workers. They have a defined contribution plan that is more generous than most 401(k), plus a defined benefit pension for which they contribute only 0.8 percent of pay. Overall, it’s a pretty sweet deal.
The only problem being that in comparison to the private sector, federal positions are less available. Nevertheless it seems that individuals looking for security in their future would be better off entering the public sector. However, two questions come to mind: 1) What sector has the highest average salary? 2) In each sector, what is the highest possible salary? Answers to these questions may skew the data, in terms of overall income (both earned and pension payments) in an average lifetime.