The only way a pension is 100% "private" is if by some miracle the ROI is massive to a point where only the employe contributions are able to cover all future payouts, meaning the government payout is able to go back to the general fund. Here is an example of the basic Indiana PERF:
To get your full benefits as early as possible, your years of service plus age have to equal eighty-five. So, say you start a job at 25, you work 30 years making $50K/year (to make things simple). At 55 years old, you can take full retirement since 30 years plus age of 55 equal 85. The formula for the basic PERF is (Years of service)*(Average highest wage for five years)*1.1%. In our example, it would be 30*50,000*.011= $16,500 a year for the rest of your life. This is one reason Indiana's basic retirement plan isn't doing all that bad. The payouts are no where near what other states are paying out for some of their people.
In addition to the $16,500/year, there is also an annuity benefit, which is 3% of income. In the example above, it would be $45,000 at retirement. The annuity can be invested in stock and bond funds (not that many choices), so it can be higher or lower depending on what a person chooses to invest in. In addition, there is a guaranted fund which pays a set %. The problem is that this return can be very, very low or very, very high. It is adjusted to current interest rates, so the current % is next to nothing.
At $50K/year, one will be putting in about $200/paycheck on a bi-weekly pay, so around $5,200/year. I have no idea how much the state puts in. As one can see, with this pension, the employee contributes 33% of the payout. How much the taxpayers put in depends on the rate of return that the investers can obtain on that 33%.
Most people with this pension can't retire in their 50s due to many reasons (don't save their money, health issues while working, no healthcare benefits if they leave, college cost for the kids, etc.).
Now there are other Indiana pensions, which are totally different than the above. In the above basic PERF pension, the employee also pays into Social Security. However, under the 77 Police/Fire Pension, the officers and firefighters don't. One can collect on that fund at 52 years of age with just 20 years of service.
The payout is better. It takes basically the highest wage for 1st class officer/firefighter. It then pays 50% of that wage. If you work over 20 years, it pays out 1% for every six months of additional service up to a max of 12 years, or 24% addition, for a total of 74% of wage. Say an IFD FF tops out at $60K. They work 32 years, they would get $45,000/year for life. However, I don't believe they get any social security benefit.
It is these higher payout pensions that are causing the most trouble. The payouts are tied to wages which have just went higher and higher over the decades. Also, while in past years maybe many people retired with just over 20 years, I see many officers and FF working at least 30 years. Again, more raises over those years means even more payout.
The current employee contribution is only 6% of yearly wage. The government puts in 19.7%. Out of $60K/year, this is only a contribution of about $15K/year. So after 32 years, it would be $480,000 invested for the employee. Say the employee retires with 32 years of service at age 57 with the full 74% payout at $60K/year. The amount paid in only covers a little over ten years of payouts. If there is decent enough ROI, there likely would be a lot more money to cover the additional years.
Correct. It has never been an issue until some pro-public worker states went way overboard with the pension benefits and pension in the "private" sector started to go away. Indiana's payouts aren't all that huge, but they have a possibility of getting too big if % of payout goes up and/or wages increase. Seeing what is happening around the country, I don't see any elected official ever increasing benefits. In fact, I wouldn't even be surprised to see a move to a 401(k) style system for future public employees.
