State and local public pensions generate significant amounts of economic activity nationally each year. In 2014, state and local public pension plans paid $253 billion to 9.6 million retirees and their beneficiaries. These pension benefits helped to support over 3.4 million jobs. This is according to a report released today by the National Institute on Retirement Security.
Pensionomics 2016 is an update of a report last published in 2014. Public pensions create economic activity through the direct spending of pension benefits by retirees. Retired teachers, librarians, firefighters, and other public employees don’t just save their money, they spend it. They spend their pension benefit in the local economy buying food at the grocery store on Main Street and purchasing medicine at the local pharmacy. These purchases, in turn, support the wages of the employees at these businesses, provide tax revenue for state and local government, etc. The researchers at NIRS calculate that the average economic impact of public pensions was 1.35. This means that for every $1 paid in pension benefits, it generates $1.35 in economic activity. This adds up to a meaningful amount of economic activity in states each year.
Obviously the economic impact varies from state to state depending on the size and diversity of the state’s economy. Some highlights from the report:
- In Michigan, public pensions support over 77,000 jobs; in Pennsylvania, over 107,000
- In Texas, every $1 of benefits paid from a public pension creates $1.61 in economic activity
- In North Carolina, the “taxpayer investment factor” is 10.63. This means that for every taxpayer dollar contributed to a public pension fund, that dollar ultimately generates $10.63 in total economic output in the state.
This report serves as a reminder of the true value of public pensions. Defined benefit pensions are the best retirement plan for working families because they provide a secure and reliable benefit that keeps retirees out of poverty. Public pensions also have a valuable impact on state economies, however, and this often gets overlooked.
Pensions can serve as important economic stabilizers during a downturn in the financial markets. Pension benefits will be paid and retirees will spend their benefit on necessary items like food and medicine. This can provide a valuable source of direct spending during an economic downturn like the Great Recession.
Public pensions perform a number of important functions from keeping retirees out of poverty to providing a boost to local economies. It is important to remember this when corporate special interests call for gutting public pensions. The results of such a move would be damaging and far-reaching.