If the state of California, its political subdivisions and its
employees want to save the CalPers retirement system for those
already enrolled they will have to change it immediately and
radically for all future employees; a serious two-tier system is
the only viable answer over the long-term. Making those changes
will fulfill our obligations to current employees and put future
employees in a system that is affordable and therefore sustainable.
Every new employee added to the current system adds another straw
to the camel’s back and threatens those already vested.
If the state of California, its political subdivisions and its employees want to save the CalPers retirement system for those already enrolled they will have to change it immediately and radically for all future employees; a serious two-tier system is the only viable answer over the long-term. Making those changes will fulfill our obligations to current employees and put future employees in a system that is affordable and therefore sustainable. Every new employee added to the current system adds another straw to the camel’s back and threatens those already vested.
The public employee retirement system is so expensive that moving the age of retirement a few years and/or a half a percentage point here or there for a second tier will not be sufficient to save it. It is far more generous – and therefore far more expensive – than Social Security. Publically funded benefit costs are often 40 percent of regular compensation with the retirement portion being 28 percent or more.
Public employees can often qualify for full retirement with 30 years longevity at age 50 or 55, job dependent. That is 12 to 17 years earlier than the private sector or the self-employed who must wait until they are 67 for full Social Security benefits if they were born in 1960 and later. Social Security retirement can be taken as early at age 62, but the lifetime-benefits will be reduced by a whopping 30 percent for those who choose that route. Social Security’s full the retirement age and the penalty for early retirement are likely to increase in the future.
An average wage earner retiring on Social Security can expect to receive 42 percent of their earnings in initial benefits. A low-wage earner can expect 57 percent and a high-wage earner 30 percent. Those are good numbers to remember if you’re doing Social Security retirement planning. Meanwhile, most public employees can expect to receive a low of 60 percent and a high of 90 percent of their regular earnings in initial benefits.
The life expectancies for both sets of retirees are approximately equal. They shift slightly with retirement age and gender, but age 83 is about the middle of all. Thus, a full Social Security retiree is likely to draw benefits for 16 years while a public employee will draw benefits for more than 3o years, almost twice as long.
COLA, or Cost of Living Adjustment, is a more complex issue. Social Security retirees and many public retirees get COLAs. Social Security’s adjustments are unlimited – adjustments for public employees vary, usually capped at two percent annually. However, public employees may have pre-retirement COLA adjustments in their employment contracts. Most private sector employees and the self-employed do not have automatic pay adjustments.
To sum up, average private employees and the self-employed persons can retire on Social Security at age 67, receive 42 percent of their earnings as initial benefits, and draw retirement for 16 years. Public employees can retire at age 55 or 50, receive 60 to 90 percent of their earnings as initial benefits and draw retirement for more than 30 years.
Social security taxes cost the general public 6.2 percent of employee earnings passed through as the employer’s share. Public employee retirement is typically costing the taxpayers four times that or more.Â
The more the federal government raises the Social Security retirement age, reduces benefits – probably with means testing – and increases the Social Security tax, as they must, the more the gap between Social Security and public employee retirement systems will widen in California. If there is no plan in place to change things dramatically over time, the taxpayers will unilaterally kill the public retirement system out of self-interest.
Marty Richman is a Hollister resident.
