Public pensions are powerful economic engines for local communities, states, and the national economy. As the money in public pension funds is invested and as public pension benefits are spent by retirees, this creates economic activity that supports local jobs, generates tax revenues for local, state, and federal governments, and sustains communities during economic downturns. To highlight the strong economic impact of public pensions, we created a new video explaining how pensions are vital to the national economy.
Watch our new video!
We’ve highlighted before how public pensions benefit state economies, especially rural areas. Rural areas are more heavily impacted by pension benefit spending because their largest employers tend to be schools and municipalities. When retirees receive their pension checks, they spend them, purchasing food, gas, and medicine. They use their pension benefit to pay their rent or their mortgage. They buy gifts for their grandchildren. The money from pension benefits goes back into the local economy.
It’s not just the spending of pension benefits that supports the economy. The investment of public pension funds also creates tax revenue for states and the federal government. This is not an insignificant amount of money. In 2016 pension funds generated approximately $125.6 billion in state and local revenues through the investment of pension assets.
Not only do public pensions benefit the economy, but they also promote employee recruitment and retention. Public employees value the security of a defined benefit pension and will commit to a career in public service, in part, to earn a pension. For certain professions, like firefighting and policing, there are significant training costs that go into training new employees. The public wants to get a good return on investment for training these public safety professionals and pensions help retain these employees over the course of their careers.
Public pensions also cost 48 percent less than defined contribution plans to provide the same level of benefits! This fact led the West Virginia legislature to reopen their pension plan for teachers after a failed experiment of offering a defined contribution plan. When given the option, more than 78 percent of teachers in the defined contribution plan switched to the reopened pension plan. This is projected to save the state $22 million. In total, West Virginia is projected to save $1.2 billion in the first thirty years by reopening the pension plan.
Defined benefit pension plans provide a dignified and secure retirement to teachers, nurses, firefighters, sanitation workers, and other public employees. But they do more than that. They also support the economy and keep local communities thriving. Please share our new video with your friends and family so everyone can be educated about the benefits of pensions on Main Street.