MEASURING THE ECONOMIC IMPACT OF DB PENSION EXPENDITURES

The National Institute on Retirement Security has released “Pensionomics 2012 — Measuring the Economic Impact of DB Pension Expenditures.” Often overlooked is the vital role that Defined Benefit pensions play in stimulating the U.S. economy and creating jobs. Virtually every state and local economy across the country is enhanced substantially from the spending of pension benefits. This economic stimulus is particularly important given the economic downturn and high unemployment rate in the wake of the Great Recession. Pension expenditures may be especially vital to small or rural communities, where other steady sources of income may not be readily found if the local economy lacks diversity. In addition, reliable pension income can be especially important in stabilizing local economies during economic downturns, because retirees know they are receiving a steady check despite economic conditions. In contrast, retirees only with 401(k)-type plans may be reluctant to spend down their nest egg, particularly if their savings are negatively impacted by market downturns. Retirees with a DB pension need not worry about reducing spending with every dip in the stock market. The study analyzes data on DB pension plans in both the public and private sectors to assess the overall economic impact of benefits paid by these plans to retirees. For state and local plans, the author analyzed these impacts on a national level as well as in each of the fifty states. The economic gains attributable to DB pension expenditures are quantifiable. The study finds that, in 2009:

Over $426 Billion in pension benefits were paid to nearly 19 million retired Americans. Of that:

$187 Billion was paid to some 8 million retired employees of state and local government and their beneficiaries (typically surviving spouses);

$67.6 Billion was paid to some 2.5 million federal government beneficiaries;

$171.5 Billion was paid to some 8.4 million private sector beneficiaries.

Expenditures made out of those payments collectively supported:

6.5 million American jobs that paid nearly $315 Billion in labor income;

$1 Trillion in total economic output nationwide;

$553 Billion in value added (GDP);

$134 Billion in federal, state and local tax revenue.

DB pension expenditures have large multiplier effects:

For each dollar paid out in pension benefits, $2.37 in total economic output was supported;

For every taxpayer dollar contributed to state and local pensions, $8.72 in total output was supported nationally.

The largest employment impacts were seen in the food services, real estate, health care and retail trade sectors.