Below are a couple models of Federal versus Wisconsin, this comparison was only brought on by a discussion with MB on the recent cuts to Wisconsin’s Collective Bargaining in which he advised that Wisconsin’s Benefits were well above the Federal Unions. This is based on Wisconsin’s formulas before any changes occurred from the recent happenings. I will base all salaries off of $100,000/year for the ease of math and comparisons. I will also be using an individual who got hired at 25 years of age and worked for a total of 40 years, thus retiring at 65.
Model of a Federal Employees Retirement System (FERS)
Basic Annuity (General Employees) = $44,000
1.1% of “3 High” times the number of years of service retiring after the age of 62 with more than 20 years of service.
Public Safety Annuity (Police, Fire, and Safety) = $54,000(40) = $44,000(30 years)
1.7% of “3 High” times the number of years of service (up to 20 years)
Plus
1% of “3High” times the number of years of service (beyond 20 years)
Model of Wisconsin’s Public Employee Trust
Formula Benefit = Years of Service x Final Average Monthly Earnings x Formula Factor
(s) x Actuarial Reduction Factor for early retirement (if applicable)
Final Average Monthly Earnings = Total of highest three years of earnings / Total
service (decimal equivalent of years) in those years x 12
Formula Factors are based on when creditable service was earned*:
Post-1999 Service Category
1.6% General/Teacher/Educational Support = $53,376
2.0% Elected/Executive = $66,720
2.5% Protectives without Social Security = $83,400(40) = $62,550(30 years)
The Conclusion
Undeniably in the area of Retirement Benefits it is clear that Wisconsin Employees were much more compensated that their Federal Counterparts.
Other Considerations
The one part I am unclear on is the contributions for FERS participants into their system. Wisconsin Employees pay 5% (soon to be 8%) into their retirement or Trust. From what I read Federal Employees may not contribute to FERS... so if they contributed 5% (of 100k) into an account with a 2% interest rate over 40 years it would come out to about $320,000. So at least for the general employees it could level it out to the same assuming they didn't live past 32 years in retirement. I am unaware of the salary situation for either the Feds or Wisconsin but I am going to go out on a limb and guess that their salary is in general far below the 100k. If we cut all the above numbers in half perhaps we could be closer to an average.
Additionally, at least for the "Public Safety" workers it is uncommon to work until 65 years of age due to the physical demands of the job, meaning that it is unlikely they would reach 40 years of service. Most seem to be offered retirement after 30 years / age 50-55 because of this. You get old and frail and then get hurt easier which ups disability costs so it has been proven to save money ultimately. I placed those values to the right of their 40 year rates above.
Okay MB, tear it apart!
I wrote a brilliant response, only to be encounter an error and lose everything. Thank you IE 9.
ReplyDeleteIn a nutshell, trying to compare these two pension systems is futile. They're both broken systems with funny benefit calculations and are neither sustainable. It's time we came up with a better system. I'm partial to a system by which I'm not hoped to die sooner than later. Taxpayers are partial to a system where the benefits are determined now (defined contribution system) and not my kid's problem of unknown funding obligation down the road.
Great post Steve, but I will have to wait until Monday to disect. It is finals week plus I will be at a conference all weekend.
ReplyDeleteSteve, there is nothing really to dispute with these numbers. What could be argued are prescriptions on what to do now that this information is available in plain-view. Great post Steve. You got me!
ReplyDelete