Benefits

Continuing Public Pension Reforms Could Hurt the Economy

NCPERS contends that lawmakers do not understand how public pensions work.

By Rebecca Moore editors@plansponsor.com | May 30, 2017
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In the wake of the financial crisis of 2008, public pension plans made several reforms, including benefit cuts, and increases in the age and tenure required to claim benefits. And, some state and local governments have contemplated moving to a defined contribution (DC) plan structure.

A report from the National Conference on Public Employee Retirement Systems (NCPERS) suggests that if these reforms continue, it will result in economic losses.

“Spending by retirees stimulates local economies, and pension assets are an important source of capital for businesses. America’s mortgage market, its private equity and high-tech industries, and many of its start-ups rely on pension funds as a source of capital, the report says. It cited a study by the National Institute on Retirement Security that found defined benefit (DB) pension plans stimulate $1.2 trillion in economic output

The NCPERS 2015 analysis of empirical data from the 1980s, the 1990s, and the first decade of this century shows that when pension funds are dismantled, income inequality rises. “Rising income inequality in turn drags the economy down,” the report says.

In addition, the NCPERS contends the damage to the economy due to pension cuts is usually greater than the pensions’ positive impact. “Whereas the full positive impact of pensions on the economy may not be realized because recipients may spend only a part of their checks in local economies, the negative impact of pension cuts is realized in the economy dollar for dollar—and then is multiplied several times over as it ripples throughout the entire economy,” according to the report.

NEXT: Lawmakers don’t understand how public pensions work.

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