WASHINGTON — The money that retirees spend from the payments they receive from defined benefit pension plans supports jobs and economic activity, according to a report released Wednesday by the National Institute on Retirement Security.
"DB pensions play a vital role in sustaining consumer demand that, in turn, ultimately supports millions of jobs and hundreds of billions of dollars in income, output, value added, and tax revenues," NIRS said in the report.
DB plans specify the benefits that employees will receive after they retire. There were 9 million beneficiaries of state and local government DB plans who received total benefits of $228.5 billion in 2012, according to NIRS.
Spending money from pension benefit payments has direct, indirect and induced economic impacts, NIRS said. A retiree purchasing a product from a business is a direct impact, the business then buying supplies from another business as a result of the retiree's purchase is an indirect impact, and the businesses' employees spending the income that resulted from the retiree's spending is an induced impact.
NIRS executive director Diane Oakley said a DB plan can be considered an "economic stabilizer." Retirees receiving payments from DB plans could continue to spend money at the same level during the recession as they did before it, while retirees with 401k plans lost money in their plans during the recession and as a result may have had to spend less money, she said.
State governments have been moving away from DB plans and have been considering reforms that cut retiree's benefits. If cuts are made to benefits, "it could result in [fewer] jobs in the economy and less spending by retirees," Oakley said.
NIRS looked at 2012 data on payments from private, federal and state and local DB plans to retirees, and used a modeling software and data package called IMPLAN to measure the economic impacts of retiree spending from the money they received from DB plans. The data on state and local pension plans was from the U.S. Census Bureau.
The analysis found that state and local pension benefit expenditures in 2012 supported about 3 million U.S. jobs and $147 billion in labor income. The food services, real-estate and health care sectors were the areas where retirees' spending supported the most jobs, according to the report.
Expenditures of state and local DB pension benefit payments supported $451.7 billion of overall economic output and $265.6 billion of "value added" to the national economy in 2012. Output includes the value of all goods and services produced. "Value added," also known as gross domestic product, is a net estimate of the creation of new value in the economy and includes the value of employee compensation, profits and aspects of production but not the costs of purchased materials and services, according to the report.
For every dollar taxpayers contributed to state and local pensions over 30 years, $8.06 of national economic output was generated, NIRS said.
Roughly $34.7 billion of federal tax revenue can be attributed to state and local DB pension benefits in 2012, including $1.8 billion in taxes paid by retirees and other beneficiaries on their benefits and $32.9 billion in tax revenue resulting from retirees spending the after-tax amount of their benefits. About $30.1 billion of state and local tax revenue can be attributed to state and local pension benefit payments, including $5.3 billion in taxes beneficiaries paid on the payments and $24.8 billion in tax revenue resulting from retiree expenditures, such as sales tax revenue from retail purchases, NIRS said.
Retiree spending of payments from all types of DB plans supported $6.2 million jobs, $306.9 billion in labor income, $943.3 billion in economic output and $554.6 billion in value added to the national economy, according to the report.
NIRS also looked at the economic impacts of state and local pension benefit expenditures in each state. California, the state with the largest economy, had most number of jobs, output and value added that was supported by retirees spending state and local pension benefits.
On average in 2012, each dollar of pension benefits paid out to a state resident supported $1.64 of economic output in that state, and each dollar of taxpayer contributions to plans in a state generated $5.85 in economic output in that state, according to the report. Oakley said that typically, states that have more poorly funded plans have less economic output supported by each dollar of taxpayer contributions.
