The National Institute on Retirement Security (NIRS) released the most recent update of their Pensionomics report this month. Released every two years, Pensionomics assesses the impact that public pensions have on local, state, and national economies. This year’s report finds that public pensions and the spending of pension benefits continue to have a strong effect on economic activity throughout the United States.
Public pension plans receive revenue from three different sources: employee contributions, employer contributions, and investment earnings. In most public pension plans, investment earnings represent anywhere from three-fifths to three-fourths of plan revenues. This means the money invested by public employees and taxpayers is earning a significant return on investment!
This return on investment is also where public pensions derive much of their stimulative power. Public pensions are not piggybanks where public employees stash money and leave it alone until they reach retirement age. The money that is contributed is invested and grows over the course of a public employee’s career. When that money is paid out as a pension benefit to a retired public employee, it is worth more than what the retiree and his employer contributed initially.
The spending of pension benefits by retired public employees is what truly benefits local economies. Retirees, most of whom live on a fixed income, spend their pension benefits on everyday goods: food, medicine, gas, and other staple items. They purchase these items at local businesses. Since pension benefits will continue to be paid even during an economic downturn, public pensions provide a powerful countercyclical effect when the rest of the economy slows down. This is critical to keeping local economies afloat.
The report, Pensionomics 2018, examines data from 2016 to assess this economic impact. Among the findings:
- $578 billion in pension benefits were paid to 26.9 million retired Americans
- The spending of pension benefits supported 5 million American jobs that paid nearly $386.7 billion in labor income
- The spending of pension benefits produced $1.2 trillion in total economic output nationwide
The report also concludes that:
- Each dollar paid out in pension benefits supported $2.13 in total economic output nationally
- Each taxpayer dollar contributed to state and local pensions supported $8.48 in total output nationally (because of the return on investment of the pension fund)
The latest Pensionomics report is a powerful reminder that public pensions matter — not just to retirees, but to their families, their communities, and the nation. If public pensions were eliminated, the economic consequences would be devastating.