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Friday, January 2, 2009

More on Judicial Salaries v. Law Professor and Law Dean Salaries

In his recently released 2008 Year-End Report on the Federal Judiciary, Chief Justice Roberts again makes a plea for raising federal judges' salaries, currently:

  • Supreme Court Justice:  $208,100 (Chief Justice: $217,400)
  • Circuit Judge:  $179,500
  • District Court Judge:  $169,300

I previously questioned the Chief Justice's assertion, made dramatically with the following chart, that federal judges are woefully underpaid compared to law professors and deans:

Salary Chart

On Balkinization, David Stras (Minnesota) notes that An Overlooked Aspect of the Judicial Pay Raise Debate is the far more generous pensions given federal judges compared to law professors and deans:

[L]ost in these annual pleas for a pay raise is the fact that federal judges are statutorily entitled to an enormously generous pension package -- one that entitles them to at least their salary at the time of retirement for the rest of their lives. Today, all federal judges are permitted to earn pension benefits with full pay if they satisfy the rule of eighty, which permits them to take senior status or retire on a sliding scale of age or service, beginning at age sixty-five and fifteen years of service, and ending at age seventy with ten years of service. Pursuant to 28 U.S.C. § 371, a judge that completely retires from active service is entitled "to receive the salary that he or she was receiving when he or she was last in active service." Meanwhile, if a judge satisfies the certification requirements required for senior status, then "during the remainder of his or her lifetime, [he or she] continue[s] to receive the salary of the office," which includes any pay raises passed by Congress. The income earned by both senior and retired federal judges is not subject to FICA taxes or the income taxes of many states, which means that the real income of federal judges actually rises upon their departure from regular, active service.

For federal judges, retirement benefits comprise a significant portion of the income that they expect to earn during the remainder of their lifetimes. Constructing a very simple model, I estimated the present value of both salary and retirement benefits for a judge appointed at the age of 50 and electing full retirement at the age of 65 (when she is first eligible). In constructing the model, I presume no cost of living adjustments or pay raises and no taxes of any kind on income even during regular, active service. I also apply a generous 5% discount rate, use the life expectancy data of the Social Security Administration for a person who has reached the age of 50, and assume that my hypothetical circuit judge (with a current annual salary of $179,500) earns all of her income at the end of each calendar year (which is unrealistic but has the advantage of simplicity). The present value (at the time of appointment) of the salary for my hypothetical judge during regular, active service is $1,863,148.62, or about 68% of her total income after age 50. Meanwhile, the pension benefits, discounted to present value at the time of appointment, are worth $896,206.34, or about 32% of her total expected income after age 50. ...

Charts released by the Administrative Office of the United States Courts, available here, compare the nominal pay of federal district judges to senior law school professors and law school deans. These charts, among others, have formed the basis for persistent pleas to raise judicial salaries. The charts, however, are potentially misleading because they fail to include the generous retirement benefits that are statutorily available to federal judges. Using my very rough model above and spreading the nearly $900,000 present value of pension benefits across a judge's fifteen years of active service, a federal circuit judge effectively earns at least $60,000 more per year (using the future value of these payments) than the charts released by the Administrative Office would suggest. Meanwhile, law school professors earn anywhere from a 5% to 13% matching grant toward retirement benefits from their employers, far less than the more than 33% earned by federal judges. ...

I would encourage the Administrative Office to release more sophisticated data that take into account all bases for judicial compensation, not just the nominal salary numbers now emphasized. Then I might be persuaded that federal judges are underpaid and deserve the raise that has been persistently requested by the last two Chief Justices.

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Comments

I can’t see how any of this should matter. Pay should be based on whatever the market demands it takes to get a qualified person into the job, not some scale based on an arbitrary comparison. They are also way overpaid compared to a janitor. Not a fair comparison? I suppose not if you believe that “fair” value should be determined by committees and not markets. While that looks to be the order of the day, it doesn’t make it fair or workable – as I believe we will soon see as the New New Deal plays out on the National level.

Posted by: Boyd | Jan 3, 2009 3:18:32 PM

Your chart left off two important classes of people, college football and basketball coaches.

Posted by: Tom | Jan 3, 2009 3:18:33 PM

How do we factor in the value of...

1) lifetime job security
2) federal pension and health care?

Posted by: Rusty | Jan 6, 2009 6:40:27 AM

(1) The generous pension only pays if the judge survives to meet the rule of 80. Die one day before that date, regardless of the length of service, and the judge's surviving spouse (who is entitled to no more than 33%, provided the judge pays a premium for the spouse to participate - akin to insurance) receives nothing. The estate of a judge without a surviving spouse receives nothing in any case.

(2) The blogger's comment about participation in the the 401(k) plan (which for federal employees is known as the thrift savings plan) is a red herring. In order to retire under the judges' retirement plan that provides the benefit on which your example is based, one must return the government's matching contributions to the TSP - refunding the face value of those contributions at the time they were made. (Incidentally, consider how that would work for a judge who retired on or around September 17, 2008 for reasons beyond her control, including poor health.) The judge retains the benefit of the tax deferral on her contribution as it may have have grown over time. But a give away or bonanza, it is not, and cannot fairly be considered as a bonus.

(3) Comparing law school dean retirement plans to the judges' plan only makes sense when one includes the salary comparison. In other words, deans seem to earn much more over their tenures than judges. A better comparison would be to combine the sum of their salaries before retirement and employer retirement contributions to the judges' compensation and retirement.

Posted by: My Two Bits | Jan 10, 2009 6:35:46 PM