It’s an interesting concept; paying someone today for services performed and then paying them again at some later date for those same services already rendered.
With that in mind, let’s look at what we might pay one of our public safety employees who retires at age 50 with 30 years of service and the “3%@50” defined benefit. We’ll call her “Sara”.
For the sake of discussion, Sara will die of old age on her 85th birthday which means she will receive her pension for 35 years.
If Sara was paid $124,730 for her last year’s employment, she will receive $112,500 for those 35 retired years.
Her pension check alone will cost taxpayers $3,937,500 after she has stopped rendering services to the City assuming she does not get cost of living adjustments which our current public safety retirees enjoy. We have also excluded the lifetime medical benefit as well.
When she dies at 85 she will have received $6,695,940 for her 30 years of service (not including medical or pension COLA).
That would be the same as if taxpayers had paid her $223,198 for each of her 30 years of service. Of course she started at $65,000 per year and never received a stepped increase in pay, only cost of living adjustments valued at 6% her first year and 2% for most years after and still was able to earn $124,730. Not bad for no promotions.
The entire notion of deferred compensation has me convinced we are handling pensions completely wrong.
I see two possible ways to deal with this. We could pay higher salaries now and let the employees figure out the best investment plan for their future (think 401-K) or workers will need to be productive for 40-50 years instead of 30 years.