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"Public Sector Workers Saving Less"

By John Grobe

Wednesday, September 12, 2007

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John Grobe is a retired federal employee with over 25 years of experience in federal human resources and President of Federal Career Experts, a training and consulting firm that specializes in federal employee retirement and career transition issues.

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.

  1. 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.
  2. 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.
  3. 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.

© 2009 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

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Readers' Comments

  • IT Spec gives good advice! The only caveat currently is that when the seminars are given by contractors, attendees should be careful to consider their own positions and be aware that the contractors will be (openly or not-so-openly) pushing their own products....
    Posted: October 10, 2007 9:13 AM
  • I came to work for DoD in August 1984 (missing CSRS by 8 months). I was only here a couple of years when I had the good fortunate to be able to attend a retirement seminar (when the person chosen to go was unable to attend). At that time, it was not given by contractors but by government employees...
    Posted: September 13, 2007 9:32 AM
  • A TSP only retirement savings plan isn't such a bad thing. Regular contributions (10-15 percent of salary a year) over 30 years (for example a career from age 25 to 55) can give you a retirement income equal to or exceeding your working income....
    Posted: September 13, 2007 7:53 AM

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