Know Howie Carr and the Herald are verboten here, but yesterday’s article focusing on Patrick Bulger’s MBTA pension actually made the rounds on national pension newsletters as an example of public pension abuse.
The Bulger fixation obviously is the connection, but the larger issue here is the pension system that the MBTA is running. This is beyond the pale from a cost standpoint. To wit: a 43 year old employee with earnings topping out at $72,000 “retires” after 23 years of service (the Normal Retirement Age under the Plan) and starts collecting a pension of $41,000 per year. Care to take a guess as to the actuarial value of this pension?
Considering that said pension includes cost of living increases and a spousal death benefit, the actuarial present value of said pension is between 1.1 and 1.2 million dollars, depending on your assumptions.
Contrast this in the private sector. The maximum pension in 2008 that can be paid is the lesser of $185,000 and 100% of pay, commencing at age 62. So if somehow you were making $185k and managed to accrue that full amount by age 43 (doubtful, since these accrue between when you start and when you retire), and you wanted to take the lump sum equivalent of this amount at age 43 and roll it to an IRA, the IRS limits this lump sum to 823,837. Think about that for a minute:
If you were making $185,000 per year and had accrued that full amount by age 43, the most that the IRS would allow to be paid to you is $823,837.
However, under the MBTA plan, we have an MBTA worker whose earnings topped out at $72,000 gets to collect a pension with a starting present value of almost $1,200,000.
And we won’t even get into any “retiree” medical insurance provided to him.
To anyone else out there in the private sector making a $72k salary, do you have $1.2m in your 401(k) at work at age 43?