Despite what you may think, public pension plans generated more than $277 billion in state and local tax revenues in 2016. That is the groundbreaking finding of a new report from the National Conference on Public Employee Retirement Systems (NCPERS). Nationwide, public pension plans are net revenue generators: they create $137 billion in revenue more than the taxpayer contribution to the pension plans. This eye-opening research delivers a sharp rebuke to the claims of anti-pension ideologues that public pensions are too “expensive” for taxpayers.
Previous research demonstrated that public pensions have a positive impact on local economies. The spending of pension benefits by retirees stimulates local economies in small towns and big cities in all fifty states. Taxpayers also earn a strong return on investment since the majority of revenues in public pension plans comes from investment earnings. For every dollar invested by taxpayers in a public pension fund, that dollar generates $9.19 in total economic output nationally- a 919 percent return on investment!
Pension funds earn, on average, two-thirds or more of their revenue from their investment returns. This means that the money contributed by taxpayers and public employees is earning far more than what is invested. The NCPERS study seeks to determine just how much more pension funds are earning beyond what taxpayers are contributing. The study finds that pension plans are generating significantly more in total tax revenue than the original taxpayer contribution.
Nationally, the spending of pension benefits by retirees and the investment activities of pension funds generated $277.6 billion in state and local tax revenues in 2016. What that means for taxpayers is that after their $140.3 billion taxpayer contribution to public pension plans, they saw an additional $137.3 billion in revenue. This is not just money going into the plan and out to retirees like a savings account. Real money, in the form of economic activity and tax revenues, is created by the work of public pension funds.
In 38 states, pension plans are net revenue generators. This includes states like Illinois, Kentucky, and New Jersey, where public pensions are often under attack. It also includes larger states like California and New York and smaller states like North Dakota and Wyoming.
Public pensions provide the most secure retirement for working families. They also contribute significant revenues for state and local governments to fund other public services. If public pensions were eliminated, these governments would lose a valuable and reliable source of revenue. This would harm the public services taxpayers rely on and it would decimate retirement security for hard-working public employees.