“Public Sector Workers Saving Less”

Public sector employees are saving less for retirement than those in the private sector. Here are some probable reasons for the disparity.

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.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at johnfgrobe@comcast.net to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.