Public pension funds contributed a net $137.3 billion to state and local government coffers during 2016, underscoring their power to strengthen the U.S. economy, according to a new analysis by the National Conference on Public Employee Retirement Systems.
NCPERS outlined its findings in a new study, "Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk." The analysis of how investment and spending connected to pension funds impact state and local economies and revenues drew on historical data from public sources including the U.S. Census Bureau, Bureau of Economic Analysis, and Bureau of Labor Statistics.
"Our findings are a powerful rebuke to the popular argument that taxpayers cannot afford public pensions," said Michael Kahn, NCPERS’s research director and author of the study. "The evidence shows that if public pensions did not exist, taxpayers not only wouldn’t save money; they would have to cover a severe annual revenue shortfall."
Kahn noted that the study also found that in 38 states, pensions are net contributors to revenue. The economic and revenue impact of pension assets in high-population states like California, Florida, New York, and Texas are particularly significant.
"Critics of public pensions often hang their arguments on distorted assumptions and apples-to-oranges comparisons," said Hank H. Kim, executive director and counsel of NCPERS. The most common misconception is that pensions may fall short if benefits aren’t funded in full up front, Kim said. But, he noted, pension funds actually work by accumulating assets over a worker’s lifetime. Employer and employee contributions plus investment returns contribute steadily to the funds’ growth.
"Pensions are a long-term investment, and it’s a mistake to evaluate them through the lens of short-term political expediency," Kim said. "Even worse than a mistake, it is a great disservice to the hardworking public servants who have faithfully paid into their pension plans even when the governments that employ them opted to take break from fulfilling their own obligations."
NCPERS is a non-profit network of public trustees, administrators, public officials and investment professionals who collectively manage more than $3.5 trillion in pension assets.