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This argument is fundamentally flawed. Public employees in most plans are receiving large amounts of surplus deferred compensation beyond the accumulated value of contributions (employee/employer) plus a risk adjusted rate of interest. The surplus deferred compensation is essentially the difference between account balances (similar to valuations with cash balance pensions) and the present discounted value of the retirement benefits (measured by the amount to purchase private sector annuity with the same benefit stream). In my two studies of Colorado retirees, the average surplus deferred compensation was equivalent to a lump sum payment of $520,000 to supplement their account balance. This lump sum payment is equivalent to 25 to 35 percent additional compensation per year.

The situation is much worse than it appears because of the ability for higher paid employees to spike their pensions. I found plenty of evidence of egregious pension spiking in my studies. The most ridiculous example was a university administrator who retired at age 50 with a pension valued atn more than $6 million against an account balance of $1.3 million. This administrator received large salary increases ($75,000) over the last 5 years of employment despite everyone being aware of her pending retirement.

This lump sum payment is equivalent to 25 to 35 percent additional compensation per year.

As a comparison, the federal employee retirement system is based on a contribution equal to 30% of the employee's wages. The employee puts in 3% and the government puts in 27%.

The point of this isn't to show how expensive federal employees are (no argument there) but rather to compare the payout to some state and local employees.

For that retirement contribution FERS provides the following formula. For regular employees you get 1% of average of highest three years multiplied by the number of years worked. So somebody that worked for 40 years would get forty percent of the average of their highest three years. Law enforcement has a slightly higher rate of return and a mandatory retirement age.

Compare that to some state and local employees that retire to 90% of wages or spike their retirement with an overtime sprint and you can see what a bind these states are going to be in. 30% of wages isn't going to come close to covering the costs.

And they know all the tricks to use in the last few years before they retire so they can pad their pensions too. Many employees suddenly seem to find themselves working overtime for some reason.

Padded Pensions Add to New York Fiscal Woes

The other thing to remember about the Wisconsin pension system is that benefits are based on the average of the THREE highest years of pay. It doesn’t matter if you made $25k as a janitor for 25 years, then had three years as Senior Janatorial Executive, making $120k, your pension will be based on those three years at $120k.

That’s kind of an exaggeration, but it is very common for employees to get one or two years at the end of their careers where they make significantly more, combined with a year or two with heavy overtime to really boost the pensions.