Your tax dollars at work

The Wall Street Journal included an article on 7/20/09, p. A3, that probably won’t get the attention it deserves.  It is “Pension Calculus Draws New Scrutiny” by Craig Karmin.  It tells about Pete Nowicki, a CA fire chief, who was earning $186k salary and retired in January at age 51.  Just before he retired this year, he “spiked” and now will start retirement with a $241k annual pension that will increase with cost-of-living adjustments.I first learned about spiked pensions from a golfing friend who was a minor administrator at a public high school.  He told me how he made a handsome increase in his pension by spiking.  Many public pensions are based on wages earned in the last year of employment, so the trick is to get those wages as high as possible.  To do this, they can cash in their unused vacation, unused sick leave, unused holidays and unused car allowances as well as take on special assignments that add to their pay.  In the case of Mr. Nowicki, he went right back to work for the fire department after retiring as a $176k consultant.  Not bad:  $241k retirement plus $176k consultant at age 51.

This is only the half of it.  Practically no private pension plans have a COLA, a cost-of-living-adjustment.  In fact, few private sector employees even get a pension although virtually all government people do.  Once retired, a fixed pension in the private sector stays at the same collar amount no matter what happens to the value of a dollar.  Even at a modest 3% inflation, that fixed pension goes down each year until it has lost almost half its purchasing power after twenty years of retirement when highly inflated health costs peak.  But that’s not true of the growing number of government workers due to get COLA pensions.  Their actual buying power remains the same.  And we pay for it with our taxes.

Government workers can thank their strong labor unions and weak government negotiators.  Some people think that the United Auto Workers have obtained inordinately high benefits for their members.  The UAW pales in comparison to the unions that wrestle money and benefits from our taxes.  Of course the Congress and state legislatures don’t want to make too big a fuss over this.  After all, legislatures too gain great retirement benefits.  For example, congressional retirement benefits are the same as those of the federal fire fighters.

Let’s not forget the fact that most public employees have retirement savings plans as well–and have very good health insurance benefits.  Like pensions, these too are often not available to those in the private sector.

You can use the retirement calculators on to see how much you can spend for your own retirement.  It’s unlikely to be the same as Mr. Nowicki, nor have the generous health benefits.  But you might want to bump up your estimate of future tax rates.  Unlike private sector businesses, the government is not obliged to count retirement obligations as a liability.  If the feds did that, technically the U.S. would be bankrupt!


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