DB Benefit Payments Continue to Stimulate Economy

Though this is less than the more than $1 trillion in economic output measured by the previous biennial study by the National Institute on Retirement Security (NIRS), it is roughly equivalent to the total output contributed by the entire transportation and warehousing industry, which generated $965.2 billion in total output in the national economy in 2012. According to the NIRS report, “Pensionomics 2014: Measuring the Economic Impact of Defined Benefit Pension Expenditures,” in terms of benefit source, $451.7 billion in economic activity stemmed from state and local pension benefit expenditures, $144.2 billion from federal pension expenditures, and $347.3 billion from private pension benefit expenditures.

Nearly $477 billion in pension benefits were paid to 24 million retired Americans, including $228.5 billion paid to about nine million retired employees of state and local government and their beneficiaries (typically surviving spouses); $70.7 billion paid to about 2.5 million federal government retirees and beneficiaries; and $175.6 billion paid to about 12.7 million private sector retirees and beneficiaries. 

Expenditures made out of those payments collectively supported:

• 6.2 million American jobs that paid nearly $307 billion in labor income;
• $943 billion in total economic output nationwide;
• $555 billion in value added (GDP); and
• $135 billion in federal, state, and local tax revenue.

Each dollar paid out in pension benefits supported $1.98 in total economic output nationally, and each taxpayer dollar contributed to state and local pensions supported $8.06 in total output nationally, the analysis found. 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 food services, real estate, health care, and retail trade sectors.

Nari Rhee, Ph.D., NIRS manager of research, and author of the study report, explains that when a retiree 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 laptop computer. These purchases, combined with those of other retirees with pensions, create a steady economic ripple effect. In short, pension spending supports the economy and supports jobs where retirees reside and spend their benefits.

“Additionally, reliable pension income can be especially important not only in providing retirees with peace of mind, but in stabilizing local economies during economic downturns. Retirees with DB pensions know they are receiving a steady check despite economic conditions. In contrast, retirees may be reluctant to spend out of their 401(k)-type accounts if their savings are negatively impacted by market downturns. To the extent that DB pensions provide retirees with steady income available for spending regardless of fluctuations in the stock market, DB pensions may play a stabilizing role in the economy like Social Security,” Rhee writes.

This study analyzes data on DB pension plans in both the public and private sectors to assess the overall national economic impact of benefits paid by these plans to retirees. For state and local government pension plans, the study also analyzes these impacts at the state level for each of the 50 states and the District of Columbia.

The full report and state fact sheets can be accessed from here.