Data and Research May 16, 2018

Cutting Public Pension Benefits Would Hurt the Economy

The impact of investment of assets plus spending of pension checks by retirees in 2016 yielded a $1.3 trillion contribution to the economy and $277.6 billion to state and local revenues, according to research from NCPERS.

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In its latest installment of ongoing research on the impact of public pensions on the U.S. economy, the National Conference on Public Employee Retirement Systems (NCPERS) set out to quantify the risk that reducing or even dismantling public pension benefits will ultimately backfire.

In its study, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk,” NCPERS found the economy grows by $1,088 for each $1,000 of pension fund assets. While the figure sounds small on the surface, the size of pension fund assets—$3.7 trillion in 2016—means that the impact of this growth is greatly magnified.

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The economic and revenue impact of pension assets in high-population states like California, Florida, New York, and Texas are particularly significant. However, economies and revenues of even some small states benefit significantly from investment of their pension fund assets. The impact of investment of assets plus spending of pension checks by retirees in 2016 yielded a $1.3 trillion contribution to the economy and $277.6 billion to state and local revenues.

Also during 2016, taxpayer contributions to state and local pension plans in the same year totaled $140.3 billion. Thus, pension funds generated $137.3 billion more in revenues than taxpayers contributed.

While some funding of public pensions come from taxpayers, it should be understood that it is part of the compensation of workers providing public services, the report says. “If these services were privatized, they would cost taxpayers more. The goal of private companies is to make profit. The goal of a public service is to ensure the public good,” the research report states.

“Our findings are a powerful rebuke to the popular argument that taxpayers cannot afford public pensions,” says Michael Kahn, NCPERS’s research director and author of the study. “The evidence shows that if public pensions did not exist, taxpayers not only wouldn’t save money; they would have to cover a severe annual revenue shortfall.” Kahn noted that the study also found that in 38 states, pensions are net contributors to revenue.

“Pensions are a long-term investment, and it’s a mistake to evaluate them through the lens of short-term political expediency,” says Hank H. Kim, executive director and counsel of NCPERS. “Even worse than a mistake, it is a great disservice to the hardworking public servants who have faithfully paid into their pension plans even when the governments that employ them opted to take break from fulfilling their own obligations.” He noted that employer and employee contributions plus investment returns contribute steadily to public pension funds’ growth.
Data and Research May 16, 2018

Americans Would Like Retirement Security Laws Passed

Eighty percent of American workers surveyed said they would like to hear congressional candidates discuss retirement security.  

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American workers rank retirement security as the top issue they want congressional candidates to talk about more on the campaign trail this year, according to a survey by Prudential Financial.

Eighty percent want to hear about retirement security; 75%, job security; 74%, taxes; 70%, workforce development; 67%, the minimum wage; and 61%, the cost of college.

Seventy-two percent are concerned about their financial security in retirement, 54% say they will have to delay retirement due to inadequate savings, and 65% wish they had a better understanding of how much they will need to save for retirement. Forty percent say financial stress is causing health issues or loss of sleep.

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“American workers across the board are concerned about their financial security in retirement, and they’re looking for help wherever they can get it, including from their employers and policymakers,” says Ann Kappler, deputy general counsel and head of external affairs at Prudential.

Twenty-seven percent have a second job, and 29% say daily expenses curtail their ability to save for retirement. Forty percent have cut back on retirement savings because of a financial issue.

On average, workers spend 3.6 hours a week managing personal financial issues while on the job, and 30% say financial stress has impacted their job performance.

Seventy-eight percent support Congressional legislation that would permit small businesses to join together to make it easier to offer retirement benefits to employees. If given the option, 56% would turn part of their retirement balance into guaranteed lifetime income payments. Seventy-six percent are in favor of requiring retirement plans to provide participants with estimates of their income in retirement.

Sixty-six percent said they are more likely to remain with an employer that understands their personal financial situation. Fifty-seven percent said they are more committed to employers that offer free financial education on key issues like retirement planning, and 58% said when they feel financially secure, they are more productive at work.

“The Retirement Enhancement and Savings Act contains several important provisions designed to increase access to workplace retirement plans, retirement planning information and lifetime income options,” Kappler says. “The bill has broad, bipartisan support among policymakers on Capitol Hill, as well as among retirement experts. And, as our survey shows, these sensible provisions are widely supported by those who would benefit the most: American workers.”

Morning Consult conducted the survey in April for Prudential Financial.

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