Local 2 members, do you know what your pension is worth? I say it is worth $3,333,772. Obviously, it isn’t the same for everyone, it is a function of rank, time on the job and years of service. Also, how long you live matters quite a bit. If you get run over by a bus on Clark Street as you walk out of the pension fund office after collecting that first pension check, you can ignore that $3,333,772 number. But when I looked at the monthly pension newsletter at the end of the year and saw a lieutenant that I worked under when I was a candidate, Terry Benner, I wondered what his pension benefit was worth to him when he retired. Terry retired as a lieutenant/EMT with more than 30 years on the job, the pension fund calculated his annual benefit at $100,196 with a 3% annual COLA of $3,005 Congratulations Terry, wishing you a healthy and relaxing career.
If you weren’t a member of our pension fund and you wanted the same guaranteed cash payments that Terry is going to receive, how much would you need today? That really is the question you must answer to determine what Terry’s pension is worth. Assuming Terry is going to live for 30 years, he will receive $4,312,973 from our pension fund until his death. If Terry took his scheduled annual pension payments and discounted them based on what a riskless asset (typically a US Treasury note) was yielding when he retired, he would get a figure approximating $3,333,772. The cashflows are illustrated as follows:
As you can see, over the next 30 years Terry is going to receive over $4.3 million in pension payments which when discounted equate to $3.3 million. That means if someone else wanted to receive the same benefits as Terry, they would have to buy $3.3 million in US Treasury bonds, at the time Terry retired, to guarantee an equivalent cash flow over the next 30 years. Assuming Terry lives 30 years after retirement, his riskless guaranteed pension benefits were worth $3,333,772 the day he retired.
And how much would the average-Joe have to save each year over Terry’s 30-year career to get to that $3,333,772 amount? Well, assuming over those 30 years the average-Joe could earn 7% on his investments, he would need to save over $32,000 each year for 30 years. $32,000 a year is a lot of money to put away in savings considering back in 1999 a firefighter with 10 years on the job was only making $52,818/year.
For reference, doing the same analysis would result in the following for a Firefighter and a Paramedic in Charge, retiring when Terry did, with 30 years of service:
Brothers and Sisters, your pension is an extremely valuable asset, worthy of protection and keeping a watchful eye on. For decades the politicians refused to dedicate adequate resources to secure these benefits and now they promise us a casino to make up for their previous imprudence with the City’s tax revenues. What do you know about this casino? I think it would be in your best interests to pay attention to what is happening with that project because it directly affects you. No one is going to look out for your interests better than you. Be Safe, Stay Aware, Get Involved!
Timothy McPhillips
Former FABF Pension Fund Trustee
