Everything about Pensions

Pensions are something you should understand whether you are applying to a firefighter job or you are twenty years on the job. In the former, you should be informed about how much money you have earned each month for the rest of your life. The latter, so you can be involved and informed during negotiations so you can be knowledgeable when it comes time to make a decision.

What is a Pension?

Pensions are a retirement plan that will give you consistent regular payments after you have retired. These are typically employer-sponsored plans. You typically contribute an allotted amount and once you retire, your employer promises a monthly payout.

You typically receive your monthly pension check until you pass; however, there are ways you can pass it on to surviving spouses or children (there are usually caveats that come with this, such as a reduced amount of the pension until a certain age or death).

Pensions for EMS workers are typically much more lucrative as they are incentivizing you to work in much more hazardous conditions that have extremely hazardous risks that follow that will follow you down the road to retirement. Oftentimes we see people obtaining 60%+ of the average of their best years compared to other departments that see 40% and under for their best years.

For the majority of pensions, you contribute a certain percent of your paycheck (3%-15% typically) towards the pension, and then the employer ( whether that be the city or county) will also contribute to that pension fund. Those combined contributions are then invested to help make more money for the fund and thus the pension.

Pension/401k

Pensions are employer sponsored, 401ks are employee-sponsored. Pensions normally do not let you choose where your investments will go; however 401ks will let you choose what you want to invest in based on your risk tolerance. If you retire with a 401k you will be responsible for how you manage the cash in that account. With a pension, you will receive guaranteed payments for life!

Any growth you make in a 401k account is tax-deferred (so if you are in a lower tax bracket when you retire vs when you made that growth, you will get taxed a lesser amount!).

Employers with 401ks often offer matches to contributions with limits. On a simple note, if you contribute 3% of your paycheck to your 401k they will match that 3% contribution.

These are just a few of the quick tidbits of Pensions vs. 401 (k) s, but the main thing to keep in mind is that pensions will pay you out for life (unless the company / governing body declares bankruptcy but overall carry much less market risk that 401k plans.) 401ks are maintained and managed by the employee and only last until the money in that account runs out.

Vesting

Many departments require that you work a certain amount of years before you are permitted to obtain your pension benefit. So let's say your department takes 10 years to get vested. If you leave beforehand, that means you can not get the vested pension. Any money that you contributed from your own pay will be returned to you. You will lose any unvested money or stock given by the employer since you are not vested.

To further elaborate, if you leave before you are vested, you will not get to collect your pension. There is often an age, as this encourages people to stay in the same department/ area in order to accumulate time.

Typically, there are two styles of vesting that you will see in the EMS world: cliff and graded.

Cliff is a system you'll often see where you work a certain number of years (say 5 years), and after those years are done, you are 100% vested. If you leave just one day before, you forfeit everything.

Graded means you gain slight ownership over time; say every year you get 10%, and as you work more years you accumulate a higher percentage. (Not often seen in fire departments; more often seen in 401ks)

How does the Pension Math work?

If you ask around at various departments, you will hear things like, " we have a 25-year with a 3% multiplier with an age of 50". So let's dissect that statement.

25 years = You have to work there for 25 Years

3% multiplier= For all of those years, you get 3%, which is your benefit multiplier (3% every year for 25 years tops you out at 75%)

Age of 50 = You have to at least work until the age of 50 before you can receive the benefits of the pension.

Department's best years - (typically your best 3 or 5 years)

So after 25 years of service, you will get 75% of your department's allotted time slots for best years. Let's be conservative and say your department's pension is your best 5 years.

If you were to make 100k each year for five years this is how the math would go.

Year 1 +year 2+year 3+year4+year 5/5 years= average of best 5 years

100k+100k+100k+100k+100k/5= $100,000 is the average of best 5 years

$100,000 x 75%= $75,000 every year for the rest of your life

average of best 5 years x multiplier = annual amount to be paid to YOU

$75,000/ 12(months in a year)= $6,250 a month for the rest of your life

So to sum it up, if you work at this department, you are expected to work for 25 years and once you are at least at the age of 50, assuming your top 5 years nets you 100k each year you will make $75,000 a year or $6,250 every month for the rest of your life.

Is that all I need to know about pensions?

This could get more intricate and lucrative for you if you're fortunate enough to have a COLA (cost of living adjustment) after you pension out. Some departments have up to 3% COLA after you retire. So, using the same number above, for the next 5 years of compounding 3% from the COLA, you would make:

100k first year, 103k 2nd year, $106,090 3rd year, $109,272.7 fourth year and so on and so forth.

So that's all the good news. The part that sucks is the next part. In order to participate in a pension, the majority of systems require you to contribute to it. So let's say it's 5%. If you take the percentage of your check that is pensionable and you take 5% of that, that is what you contribute to your pension.

If the portion of your paycheck that's pensionable ends up equaling $2,000, you would contribute $100 to the pension. So you will have $1,900 before taxes and all the other crap hits.

As you make more, you will contribute more to the pension, but do not fret; it all works out in the end!

WEP/GPO concerns

As of early 2025, there is good news for some people now that the Social Security Fairness Act has been signed. This repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which essentially reduced benefits for people who received a pension from a job that did not withhold any Social Security. So if your job is covered by Social Security, then you do not need to worry about this topic.

You can learn a bit more about it here