- Unless American citizens legally opt out of the Social Security system, they participate in the Social Security program. At retirement, the pensioner receives a pension based on his participation in Social Security. Higher contributions lead to higher retirement income for life. However, other government pension plans, such as state and local pensions or military pensions, offer benefits as well. Ninety percent of government employees at the state and local level participate in these defined benefit plans where a stated benefit pays out on retirement. If you participate in government pension plans, you have pension benefits in addition to your Social Security.
- A May 2011 research study done by the California Foundation for Fiscal Responsibility (CFFR) found that while public pension plans tend to be more generous, if public employees retire before the minimum retirement age, the benefits pay less than a private pension plan pays a pensioner at the same age. Since private pension plans rely on individual contributions, they offer more generous payouts for early retirement than government defined contribution plans.
- Private pension plans differ from government pension plans because the benefits from these defined contribution plans are based on contributions. They do not promise a guaranteed income like defined benefit plans. Individual retirement accounts, 401ks, simplified employee pensions (SEPs), annuities and other investment options qualify as private pension plans. Some are initiated by an individual planning for his own retirement.
In this case, the plan depends solely on his contributions for determining a benefit payout.
But private employer pension plans often have contributions by both the employee and the employer, with varying levels of participation possible for both parties. Any pension payment due you from a private pension plan will be in addition to whatever Social Security income you have earned at retirement. - The CFFR study compared the retirement benefits in the California public employees' pension plan with those in the federal government and the private sector. Researchers found that California state employees' pension benefits were as much as two to three times the level of private sector plan benefits. This is why some critics argue that government pension benefits are excessive.
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