The Foreign Service Journal, April 2016

Our pensions are the functional equivalent of $5 million worth of savings in U.S. Treasurys. THE FOREIGN SERVICE JOURNAL | APRIL 2016 49 Salaries and Retirements: Foreign Service vs. Private Sector The debate over the value of public-sector versus private- sector income and retire- ment benefits has been waged intermittently since the large expansion of the government following the Great Depression and World War II. Unfortunately, the discussion has been fraught with stereotypes, inaccurate information, ignorance and some vitriol. During my 30-year For- eign Service career, I went through all the ranks from FSO-8 to Career Minister and retired without Social Security or the Thrift Sav- ings Plan. I also spent 25 years in the private sector working as a vice president of a large company (Sears World Trade), president of a small company (U.S. Defense Systems), partner in a consulting group and a trustee of Princeton Uni- versity—a combination big business and big nongovern- mental organization. I know both worlds pretty well from personal experi- ence and from familiarity with the experiences of rela- tives and friends. Herewith, my heroically simplified take on financial remuneration during and after employ- ment in each sector. Advantage, Private Sector Private-sector salaries are about 25 percent higher than the Foreign Service at the entry level. This gap is narrowed, of course, for entry-level officers who are posted overseas—almost all are. At mid-career, the gap widens and continues to widen for the rest of the careers in both sectors. The reason for this differential boils down to one word: equity. During the course of their careers, private-sector employees accumulate equity in a variety of forms (owners’ stock, profit-shar- ing stock grants, options to buy shares at beneficial prices and the like). They have many options for converting this equity into retirement income streams. The multimillion-dollar termination or retirement packages paid to departing or retiring CEOs are primar- ily in the form of equity— usually highly appreciated shares of company stock. In short, during the working years, the advantage is with the private sector. However, when compar- ing retirements, the pen- dulum swings back to the Foreign Service. Again the reason can be summarized in one word: pensions. Defined-benefit pensions are fast disappearing in the private sector. But not for us, and that is very impor- tant. Older retiree pensions are robust. More recent retirees receive a smaller percentage of their salaries as a defined retirement benefit, but added to this is Social Security retirement income. The vast majority of For- eign Service retirees receive retirement payments from the government (pen- sion plus Social Security) ranging from $50,000 to $100,000 annually. Some receive higher amounts. For the purposes of example and simplicity, let’s say the average is $100,000. Advantage, FS Think about that for a moment. That income is guaranteed by the full faith and credit of the federal government. To obtain that income and that guarantee, a private person would have to purchase $5,000,000 in 10-year U.S. Treasury bonds currently yielding around 2 percent! Note well! Our pensions are the functional equiva- lent of $5 million worth of savings in U.S. Treasurys. That fact is well-known and envied (and in some cases resented) by our private- sector colleagues. Foreign Service pensions also have the positive attri- butes of annuities in that the income is guaranteed for life (and for the life of our spouses if we so elect). Payment is automatic—we do not have to manage the money. Further, our retirement pensions have none of the risks of private sector annuities, which are vari- able (they can go down) and subject to commercial risk (the company funding and managing the annuity can go bankrupt). For most of us, financial compensation was not high on our priority lists when we joined the Foreign Service. More important were travel, adventure, change, intellec- tual challenge and service to the nation. Most of us are very for- tunate to have had careers that met or exceeded our youthful dreams and that, in our autumn years, provide financial security as well. By both measures we are millionaires. n Views and opinions expressed in this column are solely those of the AFSA Retiree VP. Contact: boyatt@afsa.org | (202) 338-4045 RETIREE VP VOICE | BY TOM BOYATT AFSA NEWS