According to a recent survey by Fidelity Investments (as reported in Kiplinger’s Retirement Report) government, health care and education employees have set away roughly 23% less than their private sector counterparts in their defined contribution plans.
But wait, it gets worse! The average amount that was saved in these plans (e.g., 401(k), TSP, 403(b), etc.) was only $48,000 for public sector workers, compared to $62,000 for private sector workers. There was, however, some good news. 83% of public sector workers were contributing to their workplace plans, while only 64% of private sector workers were.
What is the cause for public sector employees lagging investments? A few thoughts come to mind.
- Many public sector employers still offer traditional defined benefit plans. This is becoming rarer and rarer in the private sector, even with benevolent employers. Both CSRS and FERS will provide a federal retiree with a lifetime annuity that is adjusted for inflation.
- Cost of living adjustments are more common in public sector defined benefit plans than they are in those of the private sector. Both CSRS and FERS have COLAs.
- Private sector employees who may only be counting on a defined contribution plan are likely to fund it more aggressively than would public sector employees.
With the Thrift Board considering automatic enrollment for newly hired employees, we can hope to see both the amount saved and the participation percentage increase among federal employees.
Speaking of automatic enrollment, do you think the Thrift Board should institute automatic enrollment? If they do, which fund should be the default fund? Email your answer. The results will appear in a future column in FedSmith.com.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.