Thursday, January 01, 2009

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



I appreciate this.

The issue of judicial pay is worth concern, but it also should be noted that federal judges have certain perks (including tenure during good behavior, which basically means not breaking the law too egregiously) that should be factored in, even as compared to lawyers.

I'm not sure if they always are.

On a previous thread I pointed out that by my calculations UK Judges were paid more than US Judges at equivalent levels of responsibility. That is disturbing because I suspect the more senior partners in the leading US law firms may earn somewhat more than our top silks and partners.

Over here a senior silk (QC) or partner in a major law firm will still take a considerable drop in earnings on accepting a judicial appointment. There are other compensations: a somewhat less stressful life, a first class and inflation-proof pension, the honour of knighthood for High Court judges, the fact that appellate judges are made Privy Councillors, the immense prestige which comes from being "one of Her Majesty's Judges", the chance to have one's name in the law books and to shape the law for future generations.

But surely it must be wholly undersirable for judicial salaries to get too far out of line with the earnings of the profession. If the partners in good law firms are pulling in a certain level of earnings then the remuneration package of 1st tier judges should be comparable. Should there be too great a disparity the non-monetary compensations will not serve to redress the financial disincentive to migrate to the bench and one ends up having first class minds preparing cases to be judged by second class minds.

In the UK, the earnings of the major law firms in the City of London and the cream of the bar are significantly enhanced because the UK is a "jurisdiction of choice" - a very high proportion of the work of our Admiralty, Commercial, Construction & Technology and Patents courts comes from disputes between parties who have no connection with England other than they they have chosen to contract on English law terms. That is good for our balance of payments - and it is the existence of the specialist Courts with expert judges (and, I would add, no juries in most civil claims) that enables the jurisdiction of choice work to continue to flow to the capital from around the world.

But if the judges were second-class, or corruptible, or the if the law's delays were to became unacceptable, the world business community would take its custom elsewhere.

I was concerned to see that the comparators being used for US judicial salaries were those of academics rather than of legal professionals taking responsibility for major litigation. How do professorial stipends compare with the earnings of partners in the top 500 law firms?

Either way, on other threads I suggested that the time may be ripe for systemic reforms of the justic system to be considered. The remuneration package and the mechanism by which it is indexed is obviously part of this: the judiciary are not immune from the principle that if one pays peanuts one gets monkeys.

With all due respect, I don't buy this argument at all... because it's the same argument that is made regarding military salaries (although the purported "entitlement" is a sliding 50-75% of base pay after 20-30 years). I realize full well that this looks like mere "deferred compensation" or a golden parachute; it's not. It is, instead, a budget-balancing technique that is used to shove personnel costs off onto future years in the hope that the personnel in question will somehow lose eligibility for those benefits. Take a close look at the way Congress has managed the last three sets of "major" military pay raises (particularly those affecting flag officers), for instance, and compare the rhetoric to what's going on here.

Mr Petit: with every respect, there is a special difficulty with military comparables: what should be the enhancement for having been willing to put your life on the line. Arguably "0" at any rank above Captain.

The average colonel is seen as having little utility in civilian life and the general perhaps only as a lobbyist. In fact, those who are engineers or logistics experts have skills a civilian employer can put to very good use, but what special skills for civilian life do the non-specialists have?

I happen to think that my military service taught me a great deal - but the things I learned do not count for that much in civilian life.

C.E. Petit: this looks like mere "deferred compensation" or a golden parachute; it's not. It is, instead, a budget-balancing technique that is used to shove personnel costs off onto future years ...

That depends on whether the benefits are pre-funded by putting money away as they are earned, or paid for only at the time they are due and payable. I don't know whether this is the case for either judges or military officers.

We are not even getting our money's worth now. Here are two examples of lousy federal judges:
District-court judge "Jackass" Jones:

(1) -- showed extreme prejudice against Intelligent Design and the Dover defendants -- regardless of whether or not ID is a religious concept -- by saying in a Dickinson College commencement speech that his Kitzmiller v Dover decision was based on his cockamamie notion that the Founders based the establishment clause upon a belief that organized religions are not "true" religions.

(2) -- The ID-as-science section of the Dover opinion was copied nearly verbatim from the plaintiffs' opening post-trial brief while ignoring the defendants' opening post-trial brief and the plaintiffs' and defendants' answering post-trial briefs.

(3) -- has been criss-crossing the country lecturing that critics of his Dover decision have no respect for judicial independence.

District-court judge TJ "Mad" Hatter:

-- has a bad reputation for issuing decisions without opinions.

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