WASHINGTON, Jan. 6, 2021 /PRNewswire/ -- A new report finds that economic gains attributable to private and public sector defined benefit (DB) pensions in the U.S. are substantial. Retiree spending of pension benefits in 2018 generated $1.3 trillion in total economic output, supporting nearly seven million jobs across the nation. Pension spending also added nearly $192 billion to government coffers at the federal, state and local levels.
Pensionomics 2021: Measuring the Economic Impact of Defined Benefit Pension Expenditures, released today by the National Institute on Retirement Security (NIRS), calculates the national economic impacts of U.S pension plans, as well as the impact of state and local plans on a state-by-state basis.
The full report is available here. Register for the webinar here.
A map with downloadable state fact sheets regarding the economic impact of state and local pension plans is available here.
"This study comes as the U.S. economy is under severe pressure – as manufacturing and retail sales have dropped, unemployment applications remain high, small business closures are accelerating, and corporations are warning of more layoffs and filing for bankruptcy. Especially at this moment, retirees' spending of their pension income is critical for sustaining and stabilizing consumer spending, which supports millions of jobs across the nation," said Dan Doonan, NIRS executive director and report co-author.
Retired Americans with a pension receive a stable income every month—even during a recession, which means they can continue spending at the same level as they did pre-recession. The same cannot be said for retirees relying heavily on savings for retirement income. These retirees may be fearful to spend their 401(k) savings during an economic downturn, a time when U.S. businesses are already struggling. Thus, pensions can serve as economic stabilizers, similar to Social Security and unemployment insurance.
"Given the economic stress facing state and local governments, it's all the more important to understand the tax revenue generated from pension spending. This tax revenue comes from two major sources: taxes paid by beneficiaries directly on their pension benefits and taxes from expenditures in the local economy, like sales tax on retail purchases. This is a stable source of revenue for governments, which will be increasingly important this year," Doonan explained.
Pension spending supports jobs and the local economy where retirees reside and spend their benefits. For example, when a retired nurse receives a pension benefit payment, s/he spends the pension check on goods and services in the local community. S/he purchases food, clothing, and medicine at local stores, and may even make larger purchases like a car or a computer. These purchases, combined with those of other retirees with pensions, create a steady economic ripple effect.
This study finds that in 2018:
1. $578.7 billion in pension benefits were paid to 23.8 million retired Americans, including:
$308.7 billion paid to some 11.0 million retired employees of state and local government and their beneficiaries (typically surviving spouses);
$105.9 billion paid to some 2.6 million federal government beneficiaries;
$164.1 billion paid to some 10.1 million private sector beneficiaries, including:
$44.2 billion paid out to 3.8 million beneficiaries of multi-employer pension plans, and
$119.9 billion paid out to 6.3 million beneficiaries of single-employer pension plans.
2. Expenditures made out of those payments collectively supported:
6.9 million American jobs that paid nearly $394.2 billion in labor income;
$1.3 trillion in total economic output nationwide;
$703.9 billion in value added (GDP); and
$191.9 billion in federal, state, and local tax revenue.
3. Pension expenditures have large multiplier effects:
Each dollar paid out in pension benefits supported $2.19 in total economic output nationally.
Each taxpayer dollar contributed to state and local pensions supported $8.80 in total output nationally. This represents the leverage afforded by robust long-term investment returns and shared funding responsibility by employers and employees.
The largest employment impacts occurred in the real estate, food services, healthcare, and retail trade sectors.
Pension expenditures are especially vital for small and rural communities where other steady sources of income may not be readily found if the local economy lacks diversity. Recent research found that public pension benefit dollars represented between one and three percent of gross domestic product (GDP) on average among the 1,401 counties in 19 states studied in 2018.
The purpose of the Pensionomics 2021 study is to quantify the economic impact of pension payments in the U.S. and in each of the 50 states and the District of Columbia. Using the IMPLAN model, the analysis estimates the employment, output, value added, and tax impacts of pension benefit expenditures at the national and state levels. Because of methodological refinements explained in the Technical Appendix, the state level results are not directly comparable to those in previous versions of this study.
The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org. Follow NIRS on Twitter @NIRSonline.