The beginning of every year seems to have an inordinate number of media stories about legislatures looking at their public employee pensions. This year is no different. It’s a good thing though that more journalists are endeavoring to seek balancing, informed views of what is going on.
For example, Tuesday’s edition of the Fort Worth Star-Telegram carries a story about how the Texas legislature is viewing the funding status of the state’s largest pensions. Yours truly offers a couple of comments on a tax that some are proposing to levy on pensioners as a funding option for the Pension Review Board, the organization responsible for monitoring the state’s pensions. As I said to the reporter, there is a legal issue involved in this – Is the tax a benefit to the pension trust? If it is not, then it is not a legal expense that the state can add. I’m sure we’ll see more on this topic.
And on Saturday the Wall Street Journal published my Letter to the Editor questioning a statement in an editorial on Utah’s current pension changes. The WSJ editorial said the state was paying 10 percent of its employees’ salaries as a retirement benefit and called the contribution “a generous amount by private company standards.”
I question that characterization, especially because it was ostensibly intended to fan the flames of envy politics that are so popular right now.
Here’s the point: Private companies contribute 6.2%of each employee’s salary, by law, as their Social Security retirement benefit. The employee also pays 6.2% of their salary to Social Security. Then the company may pay up to 3-5% of the employee’s salary in matching funds to their 401(k) account. That’s a 9.2-11.2% retirement benefit that’s paid by private sector employers on their employees behalf – a very comparable amount to the ‘generous amount’ being paid in Utah.
Considered in total, an employee in the private sector benefits from 12.4 percent of their salaries paid in Social Security contributions (actually 10.4 percent this year, due to tax law changes for 2011). Then there’s their contribution of, say, 5% of their salary to their 401(k), and then their employer’s matching amount of 5%, ideally. That’s 20.4%of their salary paid in one way or another to their retirement. We just ask folks to make apples-to-apples comparisons when they are discussing these issues.
Of course, private employers can choose not to fund their employees’ 401(k) accounts at any time. We’re seeing now that that does not work in public sector employees accounts. It won’t work well in private sector employees’ retirement portfolios either. That should be a real concern to journalists as it bodes poorly for the future. – Max Patterson