Spending of Pension Benefits Drove Economic Gains in 2020, Despite COVID-19 Outbreak

Despite the onset of the COVID-19 pandemic, retiree spending of public and private sector pension benefits in 2020 generated $1.3 trillion in total economic output, according to a new report from the National Institute on Retirement Security.

The report summarizes the calculated national economic impacts of U.S. pension plans, as well as the impact of state and local plans on a state-by-state basis, by estimating the employment, output, value added and tax impacts of pension benefit expenditures. The two major sources that generate tax revenue are taxes paid by beneficiaries directly on their benefits and taxes resulting from expenditures made in the local economy, such as sales taxes.

Analysis in the report found that approximately $612.6 billion in aggregate public and private pension benefits paid out during 2020 supported more than $1.3 trillion dollars in overall economic output in the national economy and nearly 6.8 million jobs in the U.S.

Approximately $718.6 billion in economic activity derived from state and local pension benefit expenditures, $191.2 billion from federal pension expenditures, $296.8 billion from single employer pensions and $99.9 billion from multiemployer plans. The study also found that the benefits contributed nearly $160 billion in total tax revenue, including just under $63 billion in federal tax revenue and close to $95 billion added to state and local coffers.

“The impact of pensions goes so much deeper than providing financial security to retirees, which we saw in real time during the global pandemic,” Dan Doonan, NIRS’ executive director and co-author of the report, said in a statement. “During this time, pension income was crucial for millions of Americans. In contrast, many retirees relying on individual savings in 401(k) accounts during the height of the pandemic were fearful to spend their savings, which is detrimental to the economy.”

The study found that the largest employment impacts occurred in the food services, healthcare and retail trade industries. According to the report, in 2020, pension expenditures supported 326,024 jobs in the retail industry, 547,819 jobs in full- and limited-service restaurants and 662,188 jobs in the health-care industry, such as nursing and community care facilities, hospitals and physicians’ offices.

The states with the largest total output and value added impact included California, which had $76.1 billion in output and $47.9 billion in value added impact, and New York, which had $35.8 billion in output and $23.7 billion in value added impact.