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Judging from the flood of e-mail after my column last week, I apparently touched the third rail at one of the junctions where politics and economics collide.

Do the retirement benefits found in the public sector reflect sound business sense?

My first pass at an answer was based on anecdotal evidence from discussions with people who had some experience with these plans.

Admittedly, I had some facts incorrect.

For example, the tax treatment for a retirement benefit qualifying for disability treatment is only 50 percent -- not 100 percent -- tax-free. Other e-mailers pointed out that retirement benefits are rarely the 90 percent that I cited. But I must say that for every respondent pointing that out, there was one who claimed to know people who were receiving 90 percent or more.

In one case, a reader pointed out that she overheard a conversation between two retirees from a Peninsula city government (while waiting in line for a Commonwealth Club lecture) who were marveling about how much more they now made in retirement income than they earned when they were working for the city.

I was wrong about overtime being included in the salary that is considered for determining retirement pay. However, a certified public accountant who once audited local municipal plans cited cases he had seen in which some employees in their last few years filled in for those who were sick or on vacation. Apparently this did not qualify as "overtime" and the additional income counted for calculating future retirement benefits.

The same person also confirmed the 90 percent factor that he had seen in many cases.

You be the judge.

Shall we believe that these two people sat at their computers and made up these stories? I could be wrong about the rules, but what is happening in actual practice?

How easy is it to game the system and jeopardize what should be a fair deal for civil servants who deserve a reasonable retirement income?

To drill down through the hysteria on both sides, we need to understand the key fundamental of "Present Value." When we promise to pay a stream of income to someone over many years, what does that stream of payments equal as a cost to us in today's dollars?

Here's an example to illustrate:

A stream of payments for 20 years, an average retirement benefit, is an amount of money that we can add up and arrive at in total dollars. However, if we wanted to determine what it is worth today, we have to recognize that a dollar spent 20 years from now is one that we have time to accumulate. We can put a little money in an investment account now and let it grow to what it needs to be to meet our 20th-year obligation.

Meanwhile, the payment for next year will cost us the full amount of the payment because we have to come up with the money now. To calculate a present value, of all the payments, we calculate the present value of each year's cost and add them all up. The total is today's cost of the entire 20 years' worth of payments.

Assuming that we can earn 6 percent on what we invest, let's calculate the present value of a $60,000 per year retirement benefit increasing by 2 percent per year for 20 years that has a total sum of $1.5 million. (The 20th-year benefit is $87,400.) The present value of that amount, however, is only $820,000, because the 6 percent earnings will help to pay for latter-year payments.

Anyone who is about to start receiving a retirement benefit of $60,000 per year is someone for whom we should have earmarked and accumulated $820,000 in a retirement account. The problem with these pension promises is that when we suddenly lower the retirement age, or increase the benefit, the present value number can change dramatically, and the increase in today's present value cost is never immediately recognized.

Even if a few people understand it, the voters certainly don't.

Don't get me wrong. I am proud to pay taxes to support governments for the services and protection they provide.

I'm glad I don't have to cruise around wearing a bulletproof vest.

The spirit of these columns is to ask whether we're making promises with costs we can't comprehend, much less afford. Are some people gaming the system and costing us more than they deserve?

These are legitimate questions. Send me more facts and anecdotal evidence, and I'll share it all in an effort to invite informed decisions.

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