FEDweek

Come for the Work, Stay for the Retirement Benefits

Some ski towns looking to attract year-round residents rather than just short-term visitors promote themselves as places where you’ll “come for the winters, stay for the summers.” Some people who have done just that say there’s a lot of truth in it, although they’ll often also mutter about the “mud months” between the winters and the summers.

But what about the federal government? Why do people come, and why do they stay, often all the way to retirement?

The Congressional Budget Office has a not-surprising answer to that one. People come for the jobs, and they stay for the benefits, particularly retirement benefits.

That was one message of its recent study on how federal salaries compare to those of the private sector. It found that overall, federal employees have a slight 3 percent salary advantage, although most of that is attributable to jobs requiring less education, while in positions requiring a masters degree or more, federal employees are paid substantially less on average.

But it found a more substantial advantage on the federal employment side when benefits are thrown into the mix: 17 percent overall, with less-educated employees much farther ahead and more-educated ones nearly equal.

The point of this is not to refight the battle over pay and benefit comparisons. That long ago took on the characteristics of the Western Front in World War I: both sides deeply entrenched along lines that rarely moved—and when they did, it took so much effort to produce so few results that the soldiers quickly decided it wasn’t worthwhile to even try (their leaders were another matter).

Rather, focus on what CBO had to say about the value of federal benefits, particularly those related to retirement:

“Most of the higher benefit costs incurred by the federal government stem from differences in retirement bene­fits. The federal government provides retirement benefits to its workers through both a defined benefit plan and a defined contribution plan, whereas many large private-sector employers have replaced defined benefit plans with defined contribution plans.

“The federal government also provides subsidized health insurance to qualified retirees, an arrangement that has become much less common in the private sector. As a result, deferred compensation accounts for a greater portion of total compensation in the federal government than in the private sector, on average.

“Federal pension and health care benefits for retirees are likely to attract work­ers who plan to stay with the same employer for many years, because the value of those benefits rises sharply if an employee waits to leave federal service until he or she is eligible for an immediate pension (at which point the employee is generally also eligible to receive federal health care benefits in retirement),” it said.

In other words, CBO concluded that there are two main reasons to stick with the government for a full career: the prospect of an eventual defined benefit annuity and the prospect of health insurance for life with a continued employer contribution toward the premiums.

Keeping an eye on those benefits ahead might make the mud months of a federal career a bit easier to endure.