More on Private Social Security

We just got an interesting, wonky email on this week’s story about the privatized version of Social Security available to some city workers. The author, Larry Littlefield, worked as an economist at City Planning for 13 years, and he argues that for most politicians and staffers, city pensions — which we’d called “generous” — are actually a bad deal, because they’re tilted toward older government lifers.

Littlefield’s story is a pretty good case study in privatized Social Security. He’s glad he had a chance to opt out, and feels that the public system repeatedly ‘screws’ people of his generation.

Here’s from his email:

“Thanks to my many years as a ‘provisional’ employee … I have accumulated a tidy sum in my 401K and 457 accounts.

“But you indicate that I am foolish for not entering the ‘generous’ pension plan. That is not correct.

“Over the years, the City, State and Unions have enacted pension improvments for those with seniority in booms, and cut benefits (for those other than police and fire) in busts. As a result, even if I were to have paid in at the most advantageous time (25 years from age 32 to 57), retired at the most advantageous time (age 57), and lived to a ripe old age, I cannot see how the employer’s contribution could be any more than the six percent per year I would otherwise have to contribute to Social Security. That’s assuming investment returns of just 4 percent more than inflation — far less than the city’s pension plans assume.

“In fact, the city would likely contribute even less, because for mid-career hires and those who leave public service mid-career (as I have), the pension is a real ripoff. With the exception of those allowed to retire at age 42 (police and fire), most civil servants in lower pension Tiers would be better off outside the plan. Their 5.85 percent pension contributions subsidize those who came before. In at least one of the agencies I was hired into, they do the math for you, and show you that for new hires there really is no pension plan worth having. Not before you are hired, but your first day on the job. But I already knew.

“So why are city and state pension costs so high? It’s the high cost of making up the shortfall for those in higher pension Tiers, along with the police and fire, as a result of the failure of the employer to put enough in during the 1990s stock boom, and the pension enhancement handed out and the end of it. Those with more than 10 years seniority pay nothing into the pension funds, not 5.85 percent. Many of those hired before the late 1970s also contributed nothing. If the city’s actuary were to tell you how much, as a share of salary, the city needs to put in for new employees, you’ll find its very, very low.

“Of course, by not contributing to Social Security, I have not been accumulating Social Security credits. But I already qualify based on the jobs I had from age 16 to 27, and can add to my qualifications in future employement. That’s if Social Security stays as is. More likely, it won’t….

“In short, my generation and those after are screwed by not having pensions in the private sector, screwed by a multi-Tier pension system in the public sector, screwed by already paying more into Social Security and accepting a later retirement age under the 1983 deal to “save” Social Security and then finding out it is not saved, screwed by the national debt, screwed in general. Unfortunately, I can’t opt out of the national debt (although I don’t hold long term treasuries in case future generations decide to) but I was able to opt out of the rest, at least for a while.”