While many Americans are struggling to save for retirement and employee pension programs, both public and private, are facing lots of uncomfortable realities, elected representatives and senators in the United States Congress still receive envious pension benefits for life. Retirement pay for Congress is not normally a big election year issue, but it might serve as evidence of a disconnect between lawmakers and mainstream America.

Overview

The median net worth for a member of Congress surpassed $1 million in 2013, where it remained through 2016. This compares to the average American household median net worth of less than $60,000. As reported by the Center for Responsive Politics, "it would take the combined wealth of more than 18 American households to equal the value of a single federal lawmaker's household." Entering 2016, approximately 8% of U.S. households could be classified as millionaires, compared to more than 50% of the members of Congress.

Congressional members are eligible for their own unique pension plans under the Federal Employees Retirement System (FERS), though there are other retirement benefits available, ranging from Social Security and the Civil Service Retirement System (CSRS). Currently, members of Congress are eligible for a pension dependent on the member's age at retirement, length of service, and salary. The pension value can be up to 80% of the member's final salary. In 2016, Congressional pay was $174,000 per year, which, at an 80% rate, equates to a lifelong pension benefit of $139,200. All benefits are taxpayer-funded.

Additionally, members of Congress enjoy the same Thrift Savings Plan (TSP) as all other federal employees, which is similar to a 401(k). More taxpayer funds are used to match Congressional contributions up to 5% per year, in addition to an extra 1% giveaway regardless of how much the Congressman contributes, if anything. Because members of Congress earn far more than the average American citizen, their initial Social Security benefits average more than $30,000 per year compared to just $18,000 for a middle-class retiree.

Few private employees have the option to contribute to an employer-sponsored defined benefit pension plan. Most have the option to contribute to a 401(k) or 403(b), while others may contribute to an employee stock ownership plan (ESOP) or some other retirement option. The median benefit for private pensions and annuities was approximately $10,000 per year in 2015. For those receiving Social Security and a private pension, median income was between $30,000 and $35,000 per year. As far as other retirement assets, research from the Federal Reserve in 2013 found that the median retirement account balance was $59,000 and the mean balance was $201,300.

How Benefits Have Changed Over Time

Participation in defined benefit pension plans peaked in the private sector in 1985, when about 40% of U.S. workers participated. Greater than 80% of American employees who worked for large companies in the private sector contributed to a pension plan. That rate dropped below 20% by 2011, per the U.S. Bureau of Labor Statistics. Between 2001 and 2004, almost one-fifth of the Fortune 1000 closed down or at least froze their defined benefit retirement plans.

In 2017, defined contribution plans have become more prominent with 47% of private sector companies offering them versus 8% offering defined benefit plans. In the private sector 66% of workers report access to retirement benefits and 50% report that they are participating.

Increasingly, American workers are forced to rely on 401(k) plans, individual retirement accounts (IRAs) and Social Security for their retirement. Among these, only Social Security provides a guaranteed minimum payment in retirement, and even those benefits seem uncertain, considering the massive unfunded future liabilities faced by the U.S. government.

Congress did not always receive a gold-plated pension. Before 1942, members of Congress did not receive a taxpayer-funded retirement plan and most of them spent the majority of their time away from Washington D.C. This early system was quickly scrapped after public outcry, however. A post-war pension was put into place after World War II and eventually replaced by FERS in the 1980s. The current Congressional pension system has not changed much since 2003, after which all incoming freshmen representatives and senators were no longer able to decline FERS.

Congress has not voted to increase its retirement benefits at all since the Great Recession. However, due to the struggles faced by most individual retirement plans and corporate pension programs, the Congressional retirement package did increase relative to the average American retirement plan.

During and After Financial Crisis

Unfortunately, the once-promising 401(k) era failed to live up to its promise after unrealized gains were wiped out by the 2000-2001 and 2007-2009 recessions, though some of the lost retirement wealth from 2009 recovered quickly. By 2011, the average retirement account balance increased by 7%. Those gains were conspicuously concentrated among the wealthiest Americans; approximately 45% of workers saw declines in the value of their retirement assets between 2009 and 2011, despite the fact that the S&P 500 grew more than 50% over that period.

This coincides with participation rates for defined contribution retirement plans. Per the Economic Policy Institute, nearly nine in 10 families in the top 20% of income earners contribute to retirement savings accounts. For the bottom 20%, that ratio drops to below one in 10.

Of course, every member of Congress has several retirement plans, and their defined benefits are not negatively impacted by stock market recessions. Congress also has the unique position of determining its own benefits without having to worry about turning a profit — a private company may have to freeze its pension plan or perform a buyout if it experiences balance sheet problems, but the Congress must only appropriate tax dollars.

Even state and local government pensions are often limited by balanced budget amendments or the tolerance of local taxpayers. It is different for federal employees under FERS, because the United States government can conjure up and sell new bonds to the Federal Reserve whenever it needs an infusion of cash. This form of monetizing annual deficits does serve as a de facto tax through inflation, though voters rarely make that association. After all, their nominal tax burden does not increase.

There have been several motions, particularly from a few Senate Republicans, to cut higher pension contributions and change the health care benefits for federal employees since 2008. In 2015 and based on the recommendations of the National Commission on Fiscal Responsibility and Reform, Senate budget committee Chairman Mike Enzi (R-WY) proposed a $170 billion cut over 10 years as part of a larger deficit reduction plan. This plan and subsequent measures received little support.

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