NIRS report underscores huge economic impacts of DB pension plans

The following report was written by a CORPaTH supporter who participated in a webinar on “Pensionomics 2014” sponsored by the National Institute on Retirement Security. Click here for a related report.

On July 29, I participated in an Internet seminar (“webinar”) on the results of a new report titled “Pensionomics 2014: Measuring the Economic Impact of DB Pension Expenditures.” It was presented by the National Institute on Retirement Security (NIRS), which sponsored the study.

Diane Oakley, executive director of NIRS, introduced Nari Rhee, Ph.D., the report’s author and NIRS’ research manager. Dr. Rhee was the primary speaker throughout the presentation.

  • The report is downloadable from the NIRS website here.
  • The PowerPoint materials are downloadable here.
  • The webinar can be replayed in its entirety here.
  • A press release on the report can be viewed here.

Dr. Rhee’s report addresses the direct, indirect and induced impacts of personal income derived from public, private and federal DB pension plans on national and state economies. It doesn’t cover the effects of institutional investments by pension trusts, though she expressed her interest in studying those as well.

Using economic data from 2012, which are the latest available, the NIRS study found that DB pension expenditures…

  • had a total economic impact of more than $943 billion.
  • supported 6.2 million American jobs that paid nearly $307 billion in income to workers.
  • supported more than $135 billion in federal, state and local tax revenue.
  • had large multiplier effects. On average, every dollar paid in pension benefits generated $1.98 in total economic output. Every taxpayer dollar contributed to state and local pensions supported $8.06 in total output.
  • had the largest employment impacts on the food service, real estate, health care and retail sectors.
  • paid nearly $477 billion in pension benefits to 24 million retired Americans and beneficiaries.

The multiplier effect varies from state to state. Click here for an interactive U.S. map showing reports on individual states.

The multiplying effect is higher in states where pension funds are in good shape and lower in states with large unfunded pension liabilities. For example, California has a lower multiplying effect than the national average. West Virginia has the lowest and South Dakota has the highest.

One new insight I gained was that DB plans act as a macro-economic stabilizer. They pay the same benefits in good times and bad, whereas DC plans are affected by market fluctuations. Consequently, pension retirees can keep buying groceries, eating out, buying goods and paying taxes during economic downturns, providing crucial support for local economies and government services. On the other hand, 401(k)s and similar investment-based plans add to boom-and-bust volatility.

At the end of the presentation, some participants asked via text how they could use these findings to influence public opinion and the thinking of “anti-pension” legislators who may not realize how much their district economies rely on DB pensions. Diane Oakley responded that NIRS is not an “advocacy organization” but people are free to use the state-by-state findings as well as summaries provided in the NIRS press release.

By Dan Brin