According to a new study
from the National Conference on Public Employee Retirement Systems (NCSPERS),
public pension funds contributed $137.3 billion to state and local governments
in 2016.
“Our findings are a powerful
rebuke to the popular argument that taxpayers cannot afford public pensions,”
Michael Kahn, NCPERS’s research director said in a release. “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.”
The study found that
pensions are net contributors to revenue in 38 states. In the other 12 states,
the report said pensions were either revenue neutral, or taxpayer contributions
were greatly subsidized by state and local revenues generated by public
pensions.
“Due to lack of research
focusing on the economic impact of public pension assets, we have developed a
new model and methodology,” said the report.
NCPERS said the purpose of
the model is to estimate the economic impact, as measured by personal income,
of pension assets, controlling for other variables such as investment in
education, infrastructure spending, multifactor productivity, and income
inequality. The analysis used historical data from public sources,
including the US Census Bureau, Bureau of Economic Analysis, and Bureau of
Labor Statistics.
“Critics of public pensions
often hang their arguments on distorted assumptions and apples-to-oranges
comparisons,” Hank Kim, executive director and counsel of NCPERS, said in a
release.
Kim said the most common
misconception is that pensions may fall short if benefits aren’t funded in full
up front. He points out that pension funds work by accumulating assets over a
worker’s lifetime, and that 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.”
According to the report, the
US economy grows by $1,088 for each $1,000 of pension fund assets, and the
economic and revenue impact of pension assets in high-population states like
California, Florida, New York, and Texas are particularly significant. It also
found that the impact of the investment of assets, plus spending of pension
checks by retirees in 2016 translated to a $1.3 trillion contribution to the
economy, and $277.6 billion to state and local revenues. At the same time,
taxpayer contributions to state and local pension plans in 2016 totaled $140.3
billion, indicating that pension funds generated $137.3 billion more in
revenues than what was contributed by taxpayers.
NCPERS’ analysis also said
the shift to defined contribution plans “increases income inequality and slows
down the economy.”
The report found that the
investment of pension fund assets contributed $587.5 billion to the economy,
which in turn yielded $125.7 billion in state and local revenues. It also said
that $303.1 billion paid to retirees in pension checks during 2016 contributed
$757.8 billion to the economy and $151.9 billion to state and local revenues.
“The argument that taxpayers
cannot afford public pensions has gained traction despite a woeful lack of
empirical evidence to support it,” said the report. “Time and again,
defined-benefit pensions for firefighters, police officers, teachers, and other
public servants have ended up on the chopping block, even though plan
participants have consistently held up their end of the bargain.”
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