Research Quantifies the Broad Economic Impact of Pension Payments

Public and private sector defined benefit pension fund payments added $224.3 billion in tax revenue to the U.S. economy in 2022, according to the National Institute on Retirement Security.

More than $680 billion in pension benefits were paid to 26.3 million beneficiaries in 2022, according to new research from the National Institute on Retirement Security’s “Pensionomics 2025” report, which quantified the economic impact of defined benefit pension expenditures.

“Virtually every state and local economy across the country benefits from the spending of pension checks,” wrote the report’s authors, NRIS Executive Director Dan Doonan and Ilana Boivie, an assistant director of strategic resources for the International Association of Machinists and Aerospace Workers. “For example, when a retired nurse residing in the state of Wisconsin 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.”

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The research found that of the $680.2 billion paid out to 26.3 million retirees, approximately $371.6 billion was paid out to 12 million retired state and local government employees and their beneficiaries. $91.5 billion was paid out to 2.7 million federal government beneficiaries. Approximately $217.4 billion was paid out to 11.5 million private sector retirees and their beneficiaries, which breaks down as $51.8 billion paid out to 4.1 million beneficiaries of multi-employer defined benefit plans and $165.6 billion paid out to 7.4 million beneficiaries of single-employer plans.

The paper noted that retirees with a defined benefit pension can rely on a steady income stream from their pension and steadily spend despite fluctuations in the market. On the other hand, retirees with a defined contribution retirement plan may be reluctant to spend from these accounts in a market downturn. Because of this, the NIRS noted that DB pensions and their contributions to the economy can be a stabilizing factor, similar to Social Security.

According to NIRS, every $1 paid out in defined benefit retirement income generated an output of $2.28 to the national economy.

“This multiplier incorporates the direct, indirect, and induced impacts of retiree spending, as it ripples through the U.S. economy,” the paper stated.

The paper stated that defined benefit retirement expenditures supported 7.1 million jobs in the U.S., which paid $466.2 billion in labor income, added $871 billion to gross domestic product, generated $224.3 billion in federal, state and local tax revenue, and produced $1.5 trillion in total economic output across the country.

PBGC Premiums Now Due Sooner Than in Past Years

Premiums for plan years beginning this year will generally be due one month earlier than provided in the PBGC’s payment of premiums regulation.

The Pension Benefit Guaranty Corporation issued a technical update on Monday, providing guidance on the timing of premium payments for pension funds with plan years beginning in 2025 and later.

A provision in the Bipartisan Budget Act of 2015 makes premiums for plan years beginning this year due one month earlier than the due date provided in the PBGC’s payment of premiums regulation, according to the announcement.

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Section 502 of the BBA 2015 states that with respect to plan years beginning in 2025 and later, the premium filing due date for all plans is the 15th day of the ninth calendar month that begins on or after the first day of the plan year. A plan with a plan year beginning on January 1, 2025, for example, will have a premium due date of September 15, 2025. Before this provision took effect, the due date would have been October 15, 2025.

The BBA 2015 provision supersedes not only the normal premium due date rule for 2025 plan years, but also the special due date rules noted above. It does not supersede the PBGC’s disaster relief policy or the PBGC’s filing rules about due dates that fall on weekends or federal holidays.

All due dates for plan years beginning in 2025 can be found here on the PBGC website.

Plan administrators should disregard the premium filing dates provided in the PBGC’s payment of premiums regulation. According to the PBGC, corrected premium due dates will be incorporated into the 2025 comprehensive premium filing instructions, which will be posted in the near future.

For the past eight years, the president’s budget proposals have called for repealing Section 502 of the BBA 2015, to prevent plan sponsors from incurring unnecessary costs and burdens in preparation for making the accelerated premium payments.

According to the PBGC, the fiscal year 2025 budget characterized this repeal as “urgent” and noted that Congressional action was necessary to repeal the provision before fiscal year 2025. Although that did not happen, it is still possible that the provision will be repealed during the fiscal year. If repealed, the PBGC will revise premium filing instructions and notify practitioners “as quickly as possible.”

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