Is Double Dipping Cheating You Out of Your Tax Dollars?

As the new year begins and elected (and re-elected) officials begin their new terms, an ongoing controversy makes its annual recurrence in the news: the Double Dip. Double dipping is a term, with unfavorable connotations often described as a “loop-hole”  referring to a government employee who “retires” and begins collecting his/her government pension while continuing to work in his/her current position.

The result is a media-fueled spate of letters to the editor from taxpayers who believe government employees are gaming the system to cheat them out of their tax dollars. I respond, as Aaron Rodgers did this past football season when the Packers lost a couple of games, with “Relax!”

Private vs Corporate

Although I wouldn’t say it’s the majority of private pension plans, but a number of corporate plans in the private sector  allow employees to collect pension benefits when they hit retirement age AND continue working on a full-time basis. Some plans even mandate that benefits begin at retirement age, whether or not the employee continues to work. Furthermore, these employees can potentially earn additional pension benefits for service after retirement age while collecting their pension. Funny, but I’ve never seen these provisions in private plans referred to as a “loop hole” by the media.

Alternatively, if an employee works past retirement age and decides to delay pension benefits, or the plan does not allow in-service benefits, the employee will continue to earn benefits or have the benefit increased for delayed commencement. His/her spouse would also receive a survivor annuity if the employee dies before retiring. The bottom line is that government pensions are not necessarily required to (and very well may not) provide the same ERISA-mandated protections afforded to the private sector.

Does it Really Cost You Money?

So, why the uproar when a government employee double dips? The pension benefit was earned over past years of public service. So, in essence, it is deferred compensation that has already been funded by previous tax dollars. The double dip does not mean double cost.  In fact, it may actually save tax dollars because the working retiree is not earning additional pension benefits, whereas a new employee would be drawing a salary and accruing tax-payer funded pension benefits. If a re-elected politician making $125,000 wants to collect a $75,000 annual pension, and pay higher marginal taxes on that additional income, I say have at it!

My point is not to debate the merits of providing government pensions to career politicians. Both are here to stay. I have no problem with a government employee earning a pension, and based on the provisions of the plan, commencing benefits at a particular age whether working or not. I also have no problem protecting spouses with a survivor annuity. I actually think it is unconscionable to NOT collect pension benefits when eligible and therefore not provide the spouse with a pension-plan-funded death benefit.

So, I guess Aaron Rodgers is right. We all just need to relax.