Millionaire Madness: Misconstruing Pension Benefits
For the second time in a month, I’ve found an analyst trumpeting the results of his study before his work is published. This time it occurred in an opinion piece in The Wall Street Journal with the provocative title, “How to Become a (Public Pension) Millionaire.” The author, Andrew E. Biggs, is a resident scholar at the American Enterprise Institute. His study will be published on Wednesday.
Mr. Biggs points out that some folks retiring after 30-years of public service are likely to receive well over a million in payments during their lifetime. That isn’t news. Anyone who has every played with a spreadsheet for half an hour will quickly find out that it will take a lot more than a million dollars for someone to retire unless they die prematurely. Like many other critics of public pensions, Mr. Biggs devotes most of his op-ed attacking the plans because they provide a higher level of retirement benefits than are available to the average worker in the private sector. Most private sector workers have of course lost access to defined benefit plans and have been unable to save enough on their own. Moreover, this is an odd argument coming from someone who put in quite a bit of time with the federal government and probably has accumulated some long-term benefits from his service.
Mr. Biggs is right that there are problems in the public pension system. Some public employees, particularly the politically connected, have been known to “spike” their final salary in order to boost their pension. Others have gotten their legislators to tweak the retirement formula. In addition, it’s worth examining whether certain classes of public employees are receiving benefits at too young an age or with too few years of service.
Mr. Biggs would have you believe that public pensions are simply a massive public subsidy. What he fails to disclose is that a substantial portion of a public pension is based on the contributions of employees over the decades. It’s the employees who have consistently put a portion of their salary into the pension plan, while states and municipalities played games with their contributions.
However, the most troubling portion of Mr. Biggs’ piece is his contention that public employees will somehow be millionaires because their payments over time will be more than a million dollars. It’s as absurd as claiming that someone who is paid $75,000 over two decades is a millionaire. A proper debate about pension reform doesn’t begin with Mr. Biggs’ erroneous analysis.