An Overlooked Aspect of the Judicial Pay Raise Debate

David Stras

Chief Justice Roberts made the following (familiar) plea in his year-end report on the Federal Judiciary:

I suspect many are tired of hearing it, and I know I am tired of saying it, but I must make this plea again—Congress must provide judicial compensation that keeps pace with inflation. Judges knew what the pay was when they answered the call of public service. But they did not know that Congress would steadily erode that pay in real terms by repeatedly failing over the years to provide even cost-of-living increases. Last year, Congress fell just short of enacting legislation, reported out of both House and Senate Committees on the Judiciary, that would have restored cost-of-living salary adjustments that judges have been denied in past years.

Let me begin this post by stating at the outset that it is my opinion that Chief Justice Roberts is on solid ground in requesting cost-of-living adjustments (COLAs) that would keep judicial salaries on pace with inflation. (As a side note, all pay raises are a one-way ratchet because Article III does not permit Congress to diminish judicial salaries, even if the country were to go through an extended period of deflation as some economists now predict.)

But lost 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. s 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. (My guess, incidentally, is that my model substantially underestimates the value of the retirement benefits because it assumes no COLAs or pay increases during the entirety of my hypothetical judge's career, no taxes on the income earned during regular, active service, and uses a discount rate that is much higher than the average rate of inflation.)

Moreover, federal judges are also permitted to take part in the government's thrift savings plan, which is comparable to a 401(k) plan in the private sector, and they enjoy employee benefits that are very similar to those available to other government employees. 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.

Even if I made some small arithmetic errors in my model above, my guess is that the present value of pension benefits for federal judges at the time of their appointment is closer to 40% of the total income that they expect to earn after age 50 if I were to use more realistic assumptions. And even if my model is too rough to be absolutely accurate, I think it adequately makes the point that the current comparative numbers released by the Administrative Office are insufficient. As a result, I personally cannot decide whether I support a pay raise for judges beyond simple cost-of-living adjustments, in part because I am highly skeptical of the comparative data released by the Administrative Office. Thus, 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.

Note: Cross-posted on Empirical Legal Studies
Posted 11:01 PM by David Stras [link]