Many plan sponsors seem to want to stop or offload their defined benefit (DB) plan obligations. An annual report from the National Institute on Retirement Security (NIRS) demonstrates one reason lawmakers should do what they can to encourage the continued offering of DB plans and the annuitized payments they provide to retirees: support for the economy.
In “Pensionomics 2021,” Ilana Boivie, a labor economist with a specialization in retirement and health benefit plans who is currently the director of 401(k) and special projects for the IAM National Pension Fund, and Dan Doonan, the executive director of the NIRS, say, “DB pension benefits not only provide a secure source of income for many retired Americans, they also contribute substantially to local, state and national economies. DB pensions play a vital role in sustaining consumer demand that ultimately supports millions of jobs.”
The authors add that pension expenditures might be especially vital to small or rural communities, and reliable pension income can be especially important for stabilizing local economies during economic downturns.
The analysis for the 2021 report finds that, in 2018, $578.7 billion in pension benefits were paid to 23.8 million retired Americans, including:
- $308.7 billion paid to some 11 million retired employees of state and local government and their beneficiaries (typically surviving spouses);
- $105.9 billion paid to some 2.6 million federal government beneficiaries; and
- $164.1 billion paid to some 10.1 million private sector beneficiaries, including $44.2 billion paid out to 3.8 million beneficiaries of multiemployer pension plans and $119.9 billion paid out to 6.3 million beneficiaries of single-employer pension plans.
Expenditures made with those payments collectively supported:
- 6.9 million American jobs that paid nearly $394.2 billion in labor income;
- $1.3 trillion in total economic output nationwide;
- $703.9 billion in value added gross domestic product (GDP); and
- $191.9 billion in federal, state and local tax revenue.
In addition, according to the report, each dollar paid out in pension benefits supported $2.19 in total economic output nationally. Each taxpayer dollar contributed to state and local pensions supported $8.80 in total output nationally. “This represents the leverage afforded by robust long-term investment returns and shared funding responsibility by employers and employees,” the report authors note.
The largest employment impacts from pension benefits occurred in the real estate, food services, health care and retail trade sectors.
The full report is available here.
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