An April 10, 2012 article in the Wall Street Journal shines even more light on an issue that has gotten significant media attention in the current, difficult financial climate: the disparity in compensation between public-sector employees and their private-sector counterparts. While wages are, on average, roughly equal between the public and private sector, public-sector workers enjoy much more lucrative pension schemes than individuals employed in the private sector.
According to analysis by Andrew G. Biggs, a resident scholar at the American Enterprise Institute, and Jason Richwine, a senior policy analyst at the Heritage Foundation,
Public pensions calculate annual contributions based on assumed investment returns of around 8%. However, they must pay full benefits even if those returns don’t pan out. In effect, public employees as a group are guaranteed an 8% return on both their own contributions and those made by their employers – at a time when private-sector workers with 401 (k) plans receive a yield of only 2% – 3% on comparatively riskless investments such as U.S. Treasurys.” Corroborating Biggs’ and Richwine’s findings, a January 31, 2012 Congressional Budget Office report found that federal employee benefits cost about 48 percent more than benefits for private employees from 2005 to 2010.
At a time when the federal budget deficit exceeds $1.4 trillion, taxpayers simply cannot afford to continue paying for extravagant pension plans of government employees. Former Massachusetts Governor and Republican presidential candidate, Mitt Romney may have said it best:
Public servants should not get a better deal than the taxpayers they work for.