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April 1994, Vol. 117, No. 4
William J. Wiatrowski
T he income from public and private sector pensions has been debated for many years. Recently, economists Wendell Cox and Samuel Brunelli wrote of the significant advantage government employees' pension plans provide in comparison with the private sector plans.1 Data from the Bureau of Labor Statistics indicate that a greater proportion of State and local government employees are covered by a pension plan in which benefits are computed using a formula that usually is based on earnings and years of service (defined benefit plan), than are private sector workers. However, the data also indicate that private sector workers are more likely to be covered by Social Security and by defined contribution plans (plans which specify contributions but not benefits).
Examination of plan details reveals several conflicting factors that make it difficult to state with certainty whether public or private sector plans maintain an advantage regarding benefits. This article adds to the debate by providing new data and analysis of public and private sector retirement income.
Two characteristics that contribute substantially to the differences in benefits between public and private sector workers are the requirement to contribute toward the cost of defined benefit pension coverage and the availability of Social Security coverage to supplement pension benefits. Employees who contribute toward the cost of their coverage may expect to receive a greater benefit than those whose coverage is funded entirely by their employer. Similarly, employers might be more willing to finance a higher benefit if they are not also financing Social Security. Therefore, variations in pension benefits cannot be considered separately from required employee contributions and the availability of Social Security.
This excerpt is from an article published in the April 1994 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 See Wendell Cox and Samuel A. Brunelli, "America's Protected Class: Why Excess Public Employee Compensation is Bankrupting the States," The State Factor, February 1992.
New survey data on pension benefits. August 1991.
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