The Illinois Policy Institute’s Fact Finder series specifically aims
to debunk myths about public policy issues that affect Illinois. Download the full report here.
Myth: Pensions for Illinois state workers are modest.
Fact: Government pensions are generous, especially for long-time employees.
Opponents of pension reform often argue that the average government employee pension is modest, and that a lack of eligibility for Social Security enrollment diminishes financial security prospects during retirement. This obscures two facts. First, the average pension benefit for long-term government employees is significantly higher than the reported system-wide averages. Second, Social Security’s below-market rate of return means that government employees may actually benefit from not participating in the program.
In a May 2011 commentary, government employee union chiefs Ken Swanson and Henry Bayer wrote that “at the end of a working life devoted to public service, an Illinois teacher, firefighter or librarian retires with an average pension of just $32,000 a year – and many much less.”
Facts from the state pension systems’ annual financial reports paint a different picture. University workers, teachers and state employees who recently retired after spending most or all of their careers in government received far higher benefits.
In fact, workers who retired between July 1, 2009 and June 30, 2010 after 30 or more years on the job could expect initial average annual benefit payments of:
- $68,208 in the State Universities Retirement System;
- $65,109 in the Teachers’ Retirement System; or
- $38,916 in the State Employees’ Retirement System.
System-wide pension benefit averages account for employees with shorter tenures as well as for those who retired long ago on lower salaries. The system-wide average retirement annuity for SERS participants, while not reflective of what recent long-term employees are earning in retirement, is still double the average annual Social Security payment. In fiscal year 2010, the average SERS annuitant received $27,792 in benefits – twice as much as the average annual Social Security payment of about $13,938.
It’s true that many government employees do not participate in the Social Security program. They do not receive related benefits upon retirement, but it also means that they are not forced to pay into the system during their working years. In a recent report, researcher Andrew Biggs makes a compelling argument that teachers and public employees generally benefit from not participating:
Illinois teachers do not pay into, and do not receive, Social Security benefits, meaning that comparisons to private-sector workers should include both private pensions and Social Security benefits. Advocates for teachers sometimes suggest that their inability to participate in Social Security is a disadvantage. However, Social Security pays middle-income and upper-income workers a below-market rate of return, generating benefits around one-third lower than workers could receive by investing in safe government bonds. In contrast, public pensions pay employees more than three times the total bond yield.
Illinois government employees reap generous defined benefit pensions and largely avoid the problems associated with the Social Security program. Pretending otherwise does not help advance meaningful reform solutions for financially-troubled pension funds – funds that pose a growing burden on private-sector taxpayers who can ill afford even higher taxes to cover looming unfunded liabilities.
Download the full report here.
Was this report valuable to you?