The Gap Between Government Pension Plans and Private Sector Plans By Lorabella At Isnare.com Ezine Articles

Most people know that a significant gap exists between government pension plans and private sector plans. This gap extends not only to the existence of a plan, but also to the age at which the individual will be able to retire as well as other specific benefits such as ones related to medical needs.

In fact, the majority of government workers will be able to enjoy retirement effortlessly thanks to their generous plan. Workers in the private sector typically fall far behind in this particular facet of their careers. It isn’t considered fair by many, especially those individuals who are not employed by either a state or federal government.

Government Service and the Retirement Age

In fact, most government workers will be able to retire prior to reaching the retirement ages of 62, 67, or 72. Typically, a government worker earns his full benefits within 30 to 35 years at the most and is then able to stop working while collecting his benefits. In some cases, this figure could be lower, depending on the particular government office that is involved.

Government Benefits for Retirement

Additionally, since many government pension plans are defined benefit as opposed to define contribution plans, the benefits are typically guaranteed to equal a certain financial number upon reaching retirement status. Moreover, most state and federal sectors put larger sums of money into their pension plans than most private sector businesses. Therefore, their plans will lead to larger pay outs simply because they have been designed to do so.

Retired civil servants often receive a larger financial payout than private sector employees do. This is partly because of the way in which government pension plans are structured. They are designed to provide a certain benefit by the time that the civil servant retires. Typically, retirement benefits in the private sector are linked to the employee’s contributions, which often fluctuate along with the economy. Private sector plans do not offer the guarantees that the government plans offer.

Government Benefits Versus Private Sector Benefits

In general, many private sector companies are reluctant to pump lots of money into retirement or pension plans for their employees simply because they do not have the funds to do so. They cannot draw upon a large tax base nor do they have limitless funds. In the past year or so, private pension funds have decreased tremendously due to the poor state of the economy.

Pension plans are earning less and therefore, they are decreasing in value. Since the benefits are typically contribution based and not guaranteed, the employees do not have the same sense of security that government employees have. Additionally, many private sector companies are scaling back on their contribution to their employees’ pension plans due to the enormous liability that it has come to pose for them. Hence, the benefits of these plans are decreasing in size as the years go by. Many individuals working in the private sector do not even have access to employer-offered pension plans, but must instead set one up on their own.

Government Benefits and the Recession

In many states, as the recession takes its hit on the earnings for government retirement funds, lawmakers are considering tax increases within the private sector in order to make up for this short fall. Hence, the private sector takes a double hit since their own retirement plans have fallen in value. Nonetheless, the system is designed to protect the benefits of government workers and as long as the government is capable of doing so, their employees will continue to reap the benefits. It is important to note, however, that not all states have fallen into this scenario.

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