Some in Congress demonize state, local pensions — but not their own

WASHINGTON — Some members of Congress haven't been shy about criticizing underfunded state and local pension plans, even though federal lawmakers enjoy much heftier retirement packages than most private-sector employees and state workers do.

Budget battles in New Jersey, Illinois, Wisconsin and Ohio have captured headlines as lawmakers struggle over how to pay retirement benefits for state and local government workers. Some on Capitol Hill have added fuel to the flaming national debate.

In a recent speech to South Carolina Republicans, for example, Rep. Michele Bachmann, R-Minn., said, "We've got to get real about what we can and cannot afford" in state pensions.

From the other pole of debate, Sen. Sherrod Brown, D-Ohio, linked opponents of public-sector unions to Nazi Germany.

For all the theater, members of Congress, regardless of party, aren't saying much about their retirement plans, which are much more generous than those held by most Americans.

In fairness, lawmakers hold responsibilities more comparable to top corporate executives than to average workers, but there's no available data on CEOs' retirement packages, which typically feature forms of compensation other than pensions, such as stock options.

Lawmakers also pay less into their pensions and receive a better match from taxpayers than most state employees do.

"They still reserve to themselves a more generous formula than rank-and-file members of the federal government," said Peter Sepp, executive vice president of the National Taxpayers Union, which long has charged that U.S. lawmakers' retirement benefits are too generous.

Since 1984, members of Congress have enjoyed both a defined-benefit plan and a defined-contribution plan. The defined-benefit plan gives them a fixed pension in retirement that's scaled to their number of years in office.

By McClatchy Newspapers' calculation, 13 sitting senators and 31 members of the House — about 8 percent of Congress — have served at least 25 years and accrued annual pensions worth at least $50,000.

By comparison, the median amount is $8,016 for average U.S. former workers 65 or older who receive private pension payments, according to the nonpartisan Employee Benefits Research Institute.

As long as lawmakers have served five years, they can collect their pensions starting at age 62; if they've served 20 years, they can collect them at age 50; and if they've served 25 years, they can collect them no matter how old they are. Their annual pension annuities cannot exceed 80 percent of their final salaries.

Last year, only 30 percent of active workers had defined-benefit plans like the one available to lawmakers, according to the Employee Benefits Research Institute.

Lawmakers also can contribute up to $16,500 every year to a 401(k) retirement plan on a tax-deferred basis, or about 9.5 percent of their pay. Taxpayers match them up to the first 5 percent of a congressman's or senator's salary, which has been $174,000 since 2009.

Federal lawmakers contribute 1.3 percent of their salaries — $2,262 this year — into that retirement plan. By comparison, the midpoint for defined-benefit pension contributions from state workers — whom some critics have painted as fat cats living off the taxpayer — is 5 percent.

Most pension plans have a rate of about 1.3 percent to 1.5 percent, according to Labor Department and academic data. Federal employees have an accrual rate of 1 percent for their pensions. However, members of Congress enjoy an accrual rate of 1.7 percent. That means they will retire with greater retirement benefits than those who have defined-benefit plans with lower accrual rates.

By private-sector standards, it's unusual that lawmakers receive both a defined-benefit plan and a 401(k) retirement match.

"That's much more generous than what you would normally find in the private sector," said Dale Smith, president of Pension Plan Professionals in Jacksonville, Fla.

The taxpayer match of up to 5 percent of a lawmaker's pay is the same as what's offered to federal government workers.

Data from Fidelity Investments, the largest pension-investment fund, showed private-sector workers in 2010 on average set aside 8.2 percent of their pay for their 401(k) plans managed by Fidelity, and that employers on average provided 6 percent matches.

This suggests lawmakers are matched by the taxpayer at about the same rate that employers match their workers. But their fixed pensions give them a considerable boost on top of that.

Like the average U.S. worker, lawmakers elected after 1984 have 6.2 percent of their pay deducted to pay Social Security taxes.

If congressional pensions seem more generous than private-sector ones, it's intentional. They were designed in an era when there was no revolving door between Congress and the trade associations, law firms and lobbying shops that today offer former lawmakers big paydays.

"I would say it's in part a vestige" of a bygone era, said Burdett Loomis, a political scientist and expert on Congress at the University of Kansas. "There was an assumption that a lot of these people, particularly the longer-serving ones, were forgoing a substantial amount of income to stay in the public sector. That was justified on a public-policy basis."

The current congressional-pension system dates to the creation of the Federal Employees Retirement System in 1984. Lawmakers elected that year or later automatically qualify for the FERS pension.

A Jan. 7 report by the Congressional Research Service said 455 retired members of Congress were receiving federal pensions based at least in part on congressional service. About 275 retired under the pre-1984 system and received annual pensions of $69,012. An additional 180 members retired with congressional service under both the old system and/or the newer FERS; their average annual pension in 2009 was $40,140.

McClatchy has determined that 28 active House members who have served since before 1984 are eligible for the older, more generous pensions. An additional 130 have served fewer than three terms and aren't vested in their pensions. The House has 435 members, but two seats are vacant.

In the Senate, 41 of 100 senators aren't vested to receive their congressional pensions. Nine senators have served since before the new pension system began in 1984. Exactly half the Senate is vesting in FERS pensions.