Pension spending supports jobs and the economy

Benefits provided by state and local government pension plans support 2.9 million jobs and $443 billion in economic activity, according to a new report, “Pensionomics 2012: Measuring the Economic Impact of DB Pension Expenditures.” The report from the National Institute on Retirement Security (NIRS) says defined benefit (DB) pensions, in which recipients receive a specified monthly payment, have a positive “ripple effect” as retirees spend those funds on food, medicine and other expenses.

The report evaluated expenditures from public and private pensions in 2009. Overall, the pension plans provided more than $1 trillion in economic activity and supported more than 6.5 million jobs that paid more than $315 billion in labor income. The pension plans also supported more than $134 billion in federal, state and local tax revenue.

Retirees pump their pension checks back into the economy, returning $2.37 in economic activity for every dollar paid out in pension benefits, according to the report. The return was even greater for state and local pensions — $8.72 in total output for every dollar paid out.

The report includes breakdowns of the economic impact of state and local pensions in all 50 states. In Georgia in 2009, state and local pension plans supported $6.06 in total economic output for every $1 of taxpayer funding, the report said. In Michigan, the tally was $5.73 in economic activity for every dollar of taxpayer funding. In New York, where state lawmakers recently approved cuts in pension benefits for newly hired public workers, state and local pension plans returned $6.87 in economic activity for every dollar of taxpayer funding.

“Understanding the economic impact of pension spending is critical as our economy struggles to recover and create jobs,” said Ilana Boivie, author of the NIRS report and an economist with the institute. “The secure monthly income provided by pensions can act as an ‘automatic stabilizer.’ Retirees with a reliable pension check can continue to spend on basic needs even during tough economic times.”