Academic

FACING THE PENSION MESS: ?Most of the nation?s 107 million private-sector workers are forced to acc?

By Glenn Reynolds

FACING THE PENSION MESS: “Most of the nation’s 107 million private-sector workers are forced to accept 401(k) plans and other defined-contribution pensions — in which the employer makes a fixed contribution to the employee’s retirement account, rather than guaranteeing a fixed payout. By contrast, nearly all of the more than 22 million federal, state and local public employees enjoy defined-benefit pensions — with payouts fixed at some percentage of the individual’s pay for the last year or two they worked (often including overtime and payments for unused sick or vacation days).”

Nearly all is an exaggeration, I think. Or maybe I should feel worse about my own defined-contribution plan. . . .

UPDATE: Reader Michael Hankamer writes:

You should be grateful your employer set you up with a defined contribution plan. I retired (early, at 55); my employer’s defined benefit plan pays me roughly $16K/yr. No COLA. My “high 5″ at the time was about $95K. That’s, er, 16% of annual earnings after 20 years. My employer was a large defense contractor.

My wife, when she retires in 2011, will receive roughly $13K for 20 years of teaching in VA and TX. That’s about 17% of her “high three” and roughly half what it would be had she stayed in either VA or TX for her entire career (be sure to read the fine print in your defined benefit plan).

Think that’s bad?

Social Security, if you think about it, is also a defined benefit retirement plan, with the “benefit” only loosely tied to the “employee’s” earning record. And it’s even worse. I’m fully retired now, and I get very near the SS maximum of $2349/month. If my FICA withholdings had been treated like a defined contribution plan, when I retired last month I could have purchased an annuity on the open market paying $3300/month.

If you want details, you can find them here.

I think he’s wrong about federal employees, too, except for military.

Full post as published by Instapundit.com on December 21, 2010 (boomark / email).