When the COVID-19 pandemic first hit in 2020, it caused a great deal of volatility in national and local economies. However, one bright spot was that private and public sector defined benefit pensions – like the one provided by NYSTRS – had a substantial positive impact on economic gains, according to a new study by the National Institute on Retirement Security (NIRS).
Retiree spending of pension benefits in 2020 – the most recent year studied – generated $1.3 trillion in total economic output and supported nearly 6.8 million jobs across the nation, according to the report, “Pensionomics 2023: Measuring the Economic Impact of Defined Benefit Pension Expenditures.”
Pension spending also added nearly $157.7 billion to government coffers at the federal, state and local levels, the report found.
“The impact of pensions goes so much deeper than providing financial security to retirees, which we saw in real-time during the global pandemic,” said Dan Doonan, NIRS executive director and report co-author.
“In 2020, the U.S. and global economies suffered unprecedented, abrupt, and deeply devasting impacts with the COVID-19 outbreak,” Doonan said. “During this time, pension income was crucial for millions of Americans. Retirees with pensions knew that their retirement income was stable and secure, despite severe economic instability.”
That means retirees with defined benefit pensions could continue to spend at normal rates, unlike retirees who were relying on individual savings such as 401(k) accounts and may have been fearful of spending down their savings, Doonan explained.
Pension spending ripples through the economy as one person’s spending becomes another person’s income, creating a multiplier effect. Nationally, each dollar paid out in pension benefits supported $2.13 in total economic output, the report found.
In New York state, expenditures stemming from state and local pensions in 2020 generated $35.8 billion in total economic output, supported 181,576 jobs that paid $13.2 billion in wages, and poured $5.3 billion into federal, state and local tax revenues, the report found.
The report also noted that each dollar in taxpayer contributions to New York’s state and local pensions plans supported $4.40 in total economic output in the state. “This reflects the fact that taxpayer contributions are a minor source of financing for retirement benefits – investment earnings and employee contributions finance the lion’s share,” the report found.
Find the full report at www.nirsonline.org.