(MONEY Magazine) – The gaps between the princely pensions that public employees often collect and what the rest of us get are so astounding that they seem to have been exaggerated by a task force of bureaucrat-bashing Limbaughites. Read these numbers and -- unless you're a public servant yourself -- seethe: -- A state or local government worker earning $35,000 a year with 30 years on the job who retires at age 65 can expect an annual pension of about $18,000, according to the Employee Benefit Research Institute of Washington, D.C. For comparable federal employees, the pension figure runs as high as $19,700. But a similar private-sector worker would get only about $10,000 a year, or as much as 49% less. -- State governments on average spend 14.3% of payroll on pensions; for local governments it's 17.5%, and at the federal level it's a Beltway-size 25% of payroll, according to the U.S. Office of Personnel Management. (Despite a 1983 law intended to reform federal pensions, the OPM expects that 25% to grow to 40% by 2020.) As a reality check, however, private companies with pensions spend only 3.6% of payroll on such plans, on average, according to a 1991 study by Greenwich Associates, a financial consulting and research group in Greenwich, Conn. -- Moreover, many government workers enjoy two perks that almost no private employer could afford to offer. One is "spiking," a questionable practice that has been raising strong reactions around the country, as the newspaper clips on pages 138 and 139 attest. Spiking allows state and local employees to load up on pension credits at the end of their careers in order to inflate their pensions. Sometimes spiking actually manages to let them retire with higher incomes than they earned while working. The other retirement bennie, handed out by the federal government and most state and local governments, is an annual cost-of-living adjustment, which immunizes pensions from the ravages of inflation. According to Hastings Keith, co-chairman of the National Committee on Public Employee Pension Systems in Washington, D.C., $19 billion -- more than half of the total annual cost of federal civil service pensions -- pays for COLAs alone. So government pensions are now significantly more generous than private ones (for more evidence, see the table at above right). Why should you care? Simply because an increasingly significant portion of your taxes goes to pay for those overstuffed public pensions. Money calculates that if government pensions were cut to the same level as the average for private industry, taxpayers would have saved $56 billion last year, enough to cut individual . federal, state and local income taxes by almost 8%. As these ballooning pensions continue to swell, they'll likely lead to cuts in necessary government services that your taxes pay for. "Pension promises get made to employees, then become part of the general budget. That in turn narrows what you can spend on absolutely everything else, from getting potholes filled to keeping fire stations open," says Terry Clark, a University of Chicago professor of sociology. The upshot: Federal, state and municipal governments, unwilling or unable to keep their pension promises by adding the required amount of money each year, are currently underfunded by a monumental $1.8 trillion. That's more than triple the $586 billion in individual income taxes collected last year by the Internal Revenue Service. By comparison, the far more publicized shortfall in corporate pension funding is a relatively tiny $53 billion. Warns John Erlenborn, a Washington, D.C. attorney and pension specialist who is a former Republican representative from Illinois: "By the third decade in the next century, the public-pension crisis will be much, much greater than the savings and loan bailout. In fact, this one could be several orders of magnitude larger." Comparing public and private pensions helps explain how the public obligation has turned into a monster. The differences fall under two broad headings: overcoverage and underfunding. The ungodly details:

The pampered civil servant The blessing of a pension is available to just about every federal, state and local employee. By contrast, fewer than 40% of people employed in private industry work for firms that offer pension plans, according to data collected by the Employee Benefits Research Institute in Washington, D.C. The public pensions, in turn, represent a generous percentage of the public employee's increasingly superior pay. According to the U.S. Commerce Department, in 1993 the average private worker received a salary of $28,907; for state and local government employees the figure was $30,039 and for the feds, a relatively handsome $35,690. Furthermore, the bipartisan American Legislative Exchange Council, an organization of state legislators in Belleville, Ill., reports that state and local government employees' compensation rose an inflation-adjusted 14.6% during the '80s, the latest period for which figures are available, compared with just 2.4% for private-sector workers. In the past three years federal - wages increased by an average of roughly 6.2% a year, vs. 3.9% for private workers, according to the U.S. Bureau of Economic Analysis. In August, President Clinton announced that federal white-collar employees would get a pay increase averaging 2.6% next year. Consider the powerful leveraging effect of this higher pay plus the more generous formulas used to calculate public pensions. Typically, pensions are based on a percentage of an employee's annual pay times his or her years of service. In corporate pension plans, the benefit is often figured on less than 1% of pay and is typically in the range of 1% to 1.5%, according to Gerard Mingione, a principal at Towers Perrin, employee-benefits consultants in Philadelphia. For government workers, however, the pension formula is based on a comparatively lofty 1.6% to 2.5% of pay. Against this rich backdrop appears what is undoubtedly the least defensible practice in calculating government pension benefits: spiking, a plague that rages across the country in states and localities, though not at the federal level. "There is no justification, ever, under any circumstances for pension spiking," says Sylvester Schieber, director of research at Wyatt Co., a national benefits consulting firm in Washington, D.C. "It is a form of theft." Here's how spiking works: Traditional corporate pension plans typically base retirement benefits on your average earnings during your final three or five years of employment. These private plans usually exclude overtime and performance bonuses, restricting pension benefits to your base pay. By contrast, state and local pension plans are typically based on the final three years' compensation, and sometimes on the last year's alone, creating an incentive for public employees to boost their pre-retirement pay by such tactics as volunteering to delay their vacations and work overtime, thereby inflating lifelong pensions. Says Joseph Serota, a Fort Lauderdale attorney who defends cities against pension abuses: "It's often the senior managers who initiate such things, working hand in hand to help the rank and file -- and themselves." Take a look at this gallery of notable spikers and their techniques: -- When Lt. Richard Bilson, 52, cashed in his unused sick days, holidays and 12 weeks of vacation for $66,643 upon retiring from the Bristol Township, Pa. police department in March, he also qualified for a $39,000 annual pension. His last year's salary: around $60,000. Bilson used part of his sick pay to buy a Ford custom van with a vanity license plate that reads BTPD PERK. Township council president John Gieda, who opposes spiking, nonetheless maintains that the practice was initiated for the entire force because the city could not meet demands for higher pay. Police unions in neighboring towns are now pressing for the same benefit. "I hope they get it," says Bilson. -- In September 1992, Edward J. Murphy, 62, who earned $192,000 a year as superintendent of a Suffolk County, N.Y. school district, ended his 42-year career by cashing in 800 days of sick leave and vacation time at more than $1,000 per day. Combined with his $114,000 retirement incentive payment, this brought his severance pay to a total of $964,000 on top of his $100,000 annual pension. -- Four years ago Richard Dixon, 57, Los Angeles County's chief administrative officer, an appointed official, directed that the fringe benefits and perks provided to 6,500 county employees -- including the use of a car, if they had one, or cash compensation for transportation -- be counted as taxable earnings in calculating their pensions. Dixon, who cited a new state law, was upheld in court. He lost in the court of public opinion, however, and was pressured into retirement -- albeit a well-padded one. Luckily for him, his prior order boosted his own pension by close to $2,000 a month to $162,000 a year. Says Dixon: "Right or wrong, the system was such that I was both covered by the benefit package and responsible for making recommendations regarding it." And the beat goes on. Last December, Thomas Tidemanson, L.A. County's director of public works and third-ranking executive, retired from his $158,000 job and was able to start collecting $190,000 a year for not coming to work. Tidemanson's response? The pension award "was not a bonus, but part of my salary," he says. "I worked for the county for almost 39 years." The overall cost of pension spiking to Los Angeles County: as much as $400 million over the next 30 years, according to Gloria Molina, the freshman county supervisor who dug out the pension spiking scandal. Have you got the stomach for the most lavish public-pension perk of all? The one that never stops growing? Namely, the automatic cost-of-living adjustment, or COLA. Less than 1% of private firms give their retirees annual pension adjustments tied to the inflation rate, and in any given year only about 13% of private plans provide some kind of inflation increase. But annual COLAs, which also are added to Social Security checks, are standard for state, local and federal retirees. As a result, after 20 years in retirement, assuming a 4% inflation rate, the typical former private-sector worker's pension and Social Security benefit will equal 78% of the purchasing power he had the day his first pension check arrived, according to Sylvester Schieber. But the average government worker will pull in 100% of his original purchasing power. The cost of this pension benefit makes most others look puny. Not only do COLAs now account for more than half the $36 billion annual pension benefits paid to retired federal workers, but over time they make those workers look truly overprivileged. Hastings Keith, 78, a retired Republican representative from Massachusetts who helped found the National Committee on Public Employee Pensions in 1982 to push for COLA reform, likes to point to his own civil service pension as illustrative of the awesome power of COLA compounding. When he retired at age 58 in 1973 after 14 years in Congress, he received $18,720 in annual federal pension benefits. Since then, COLAs have swelled this single federal pension to a total of $71,928 this year. Keith's motto: "We should index pensions for the cost of living, not the cost of living it up."

The unlimited liability Just how did the unfunded liability of public pensions -- federal, state and local -- get to the sky-high level of $1.8 trillion and counting? If you guessed that it's mostly because the federal government (which accounts for the first $1.5 trillion -- $1500000000000.00) covers it up, you were right. Uncle Sam funds federal pensions largely on a pay-as-you-go basis. If the federal government had to account for pensions the same way it requires corporations to do so, Schieber estimates, overnight the formal U.S. debt would increase 32%, from $4.7 trillion to $6.2 trillion. In addition, although 39 states have enough money invested to cover at least 80% of their future pension obligations, the other 11 (Connecticut, Delaware, Illinois, Indiana, Louisiana, Maine, Massachusetts, Michigan, Oklahoma, Vermont and West Virginia) plus the District of Columbia have serious shortfalls: The state of Massachusetts, the country's worst offender, has promised $9 billion more in pension benefits than it has money set aside to pay for them. In New York, from 1990 to 1993, $4 billion was held back from scheduled pension fund payments because the state could not afford to make them. And Washington, D.C. is $5.5 billion in the red in its pension plans, equal to more than $9,000 for every man, woman and child living in the nation's capital. One sign that the problem is deepening, particularly in revenue-starved states and cities with large public payrolls: Lately even candidates who have won office on anti-tax platforms -- like Gov. Christine Todd Whitman of New Jersey and Mayor Rudolph Giuliani of New York City -- have been putting off public-pension funding as part of their efforts to balance budgets without raising taxes. The fruits of such postponements are bitter indeed, since funding that's not made today cannot earn and compound interest in the future. An axiom among pension experts: Every pension dollar that was set aside in 1970 is saving taxpayers $12.87 today.

What can you do to stop the overfeeding at the public-pension trough? Interviews with dozens of pension experts, reformers and public officials who fight spiking suggest making yourself heard on three fronts: -- Write to your senator and representative in Congress. Demand that annual federal pension COLAs be reduced and that the standard age for federal workers to collect full retirement benefits be increased to 65 instead of 55 with 30 years of service. Raising the retirement age would effectively slice the federal COLA outlays. -- Write to the Bipartisan Commission on Entitlement and Tax Reform appointed by President Clinton and headed by Senators Bob Kerrey (D-Neb.) and John Danforth (R-Mo.). (The address: 120 Constitution Ave. N.E., 825 Hart Senate Office Bldg., Washington, D.C. 20510.) The blue-ribbon panel, whose report is due to the President in December, is searching for ways to cut Social Security and Medicare costs. Tell the commission to continue to give significant attention to federal pensions too. -- Finally, write to your state, county and city representatives. Urge them to restrict COLAs for public employees, require that pensions be based on the five final years of salary to prevent spiking, and ban pension increases in lieu of regular pay raises. The taxes you save will be your own.

CHART: NOT AVAILABLE CREDIT:Sources: Employee Benefit Research Institute, Wyatt Co. CAPTION: PUBLIC PENSIONS DWARF PRIVATE PAYOUTS NOW Government retirees can afford to smile more than corporate types.