Pension envy for employees not on the government's dime

DC plan participants jealous of generous defined-benefit plans, study finds

Dec 7, 2012 @ 12:01 am

By Darla Mercado

Good days are ahead for government employees if they're lucky enough to have pension plans.

A recent analysis by Hearts & Wallets LLC of individuals who are near or in retirement showed that those with a public pension are happier in retirement and have higher income than those who don't have a defined-benefit plan. The firm performed a quantitative study of 4,500 people over 53, plus a focus group of 72 participants, according to Laura Varas, principal at Hearts & Wallets.

Among retired and near-retired individuals, people with public pensions enjoyed an average current household income of $65,000, compared with $50,000 for those who don't have a pension.

Income replacement rates also are higher for those with pensions, as those people are on track to replace 80% of their income, compared with 71% for those lacking a pension.

Retirees feel the difference in their lifestyles, as 44% of those without a DB plan said they have been “forced to live more frugally than they would like,” compared with less than 3 in 10 of households with public pensions.

Naturally, both groups of people have vastly different attitudes about retirement. Three in 10 of the participants without a pension worry about making ends meet, compared with 17% of those with a defined-benefit plan. Further, nearly half of the pension “have nots” described themselves as “very concerned” about making their assets last through retirement, compared with 30% of households with government pensions.

Interactions in the focus groups revealed a “quiet, sad envy” among the participants with no pension, Ms. Varas said. “There isn't anyone who's overtly envious, but there are insinuations of that,” she added

“It's more of a realization that they are on two different planets,” Ms. Varas said. “Those with government pensions: Some are sheepish, and others are adamant that they this is why they chose their profession.”

That attitude ended up reflected in how the participating groups feel about being retired. Fully 46% said they are surprised by how much they enjoy having more time and less stress in retirement, compared with 26% of those without a government pension.

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