A landmark report published by the American Enterprise Institute on state pension obligations last week delivered some troubling news for taxpayers across the country.  In particular, it was interesting to note that the retirement benefits of Colorado career state employees ranked fourth nationally, at $60,420.  The median household income in Colorado, according to the US Census Bureau’s latest data, is $58,244.  That’s right, the average career state government worker is pulling in more in retirement than the median family in our state does on an annual basis.

Another calculation that the AEI report evaluated was what the author called the “present value” of the retirement benefit.  This calculation measures how much money an individual in the private sector would have to have saved up on the first day of retirement to replicate the annual benefit that he would receive as a career state government retiree.  That number:  an eye popping $1,250,000 for Coloradans, and this does not include the value of someone’s house.  Colorado also ranked #4 in the “present value” of the state retirement benefit.

Unquestionably, career state employees have a good deal.  However, whether this system can be sustained is in question.  The growth of the state government over the past generation, combined with improvements in medicine that are leading to longer retirement periods, has put taxpayers in a tricky situation. A 401(k) type retirement plan, ubiquitous in the productive sector, would be an alternative that could give more predictability to the pension liabilities that Colorado taxpayers are on the hook for, and it could also be beneficial for state employees as well.

A 401(k) style plan would have an actual cash balance that would belong to the worker, and be portable to other jobs, making the state pension plan more fair to people who only work at the state for a few years.  The ability to pass on the value built up in one’s pension fund to their heirs is another attractive feature of this option.  Finally, the transparency of a 401(k) style account, for both the employee and the taxpayer, would be beneficial in the long run.

Transitioning to a 401(k) system for new state employees could actually be a win-win.  Colorado taxpayers can better understand what their actual pension liability is for their government workers, and new state employees will enjoy an asset that is theirs to invest, take to a new job, and pass on to their children.