State Worker Pensions: The Sky Is Not Falling (Part III)

Public pensions provide modest retirement benefits for the vast majority of California’s public employees. However, based on a scan of recent headlines, one might surmise that the sky is falling and most public pension recipients retire to a tropical paradise to live off their sizeable retirement incomes. These headlines focus on the rare anecdote and not the general rule. The reality is that nearly all of California’s public employees – including teachers and public health nurses – receive moderate retirement benefits, and that these employees work hard, serve the public, and typically earn less than what they could in the private sector.

The average annual benefit for retirees whose pension is administered by CalPERS, California’s largest public retirement system, was just $26,640 as of June 2010. In fact, around three-quarters of CalPERS’ retirees receive annual pensions of $36,000 or less. Moreover, more than 40 percent of California’s public sector workers, including K-12 school teachers, California Highway Patrol officers, and community college instructors, do not earn Social Security credits, which means that their public pensions will be a particularly important, if not sole, source of retirement income.

Public pension benefits are also an important part of public workers’ total compensation since public workers tend to earn less than private sector workers with similar characteristics – such as level of educational attainment and work experience – that affect workers’ earnings. California’s state employees earn 7.55 percent less on average than comparable private sector workers, according to a recent analysis by UC Berkeley’s Institute for Research on Labor and Employment. The pay gap between public and private sector workers is greater for those with college or professional degrees, who make up a much larger share of the public workforce. In contrast, while workers with no more than a high school degree tend to earn more or about the same in the public sector, they make up a much smaller share of the state workforce than they do in California’s private sector.

Instead of focusing on anecdotes, the pension debate should focus on whether all Californians, no matter where they work, will be able to enjoy a secure retirement. A recent Gallup poll found that more than half of working Americans do not expect to have enough money to live comfortably once they retire – up sharply from about a third in 2002. This is the real retirement problem facing the nation’s policymakers.

—Luke Reidenbach