Defending Pensions

Posted by: Nanette Byrnes on February 26, 2009

With states and cities struggling to balance their budgets, pressure is increasing on employee benefits. Now the National Institute on Retirement Security has published a report defending public pension plans and outlining the big economic benefit they bring.

The study focuses on retiree spending, and how that helps the economy. It argues that these defined benefit plans become an “automatic stabilizer” for the economy by supporting 2.5 million jobs, $358 in economic output nationwide and $57 billion in federal, state and local taxes.

According to NIRS, for every $1 in benefits paid, $2.36 of economic output is generated. And for every $1 contributed to these plans by taxpayers, there is $11.45 in economic output.

Industries that benefit most include:

– Health Care and Social Assistance: 425,000 jobs supported, $35.6 billion in economic impact.
– Retail Trade: 393,000 jobs supported
– Accommodation and Food Services: 239,000 jobs supported
– Manufacturing: $69.2 billion in economic impact
and
– Finance and Insurance: $32.6 billion economic impact

Pensions get outsized bang for the buck because employer contributions make up a small portion of the $3 trillion in assets these plans hold. The vast majority — almost 70% — comes from investment earnings. The current market downturn is threatening that though, atleast in the short term, according to one study that finds $1 trillion in losses in these plans in the past year alone.

Pressure on public pensions have been building for years as retirement benefits in the private sector have waned. But cutting benefits is extremely unpopular with elected officials, who rely on votes from local workers. This study gives them a defense of that support, breaking down the benefits state-by-state.

The states benefiting most are New York ($24.0 billion annually), Illinois ($12.9 billion), Texas ($12.4 billion), Pennsylvania ($10.5 billion) and Florida ($9.1 billion).

Reader Comments

Peter

February 27, 2009 12:47 PM

(1) If this is true for public pensions then presumably it is also true for social security. Yet social security recepients today had their benefits reduced by Greenspan and company and now actually receive substantally less than they did before when adjusted for inflation. Indeed many live below the poverty line. (2) I do support public pensions. However in California we have a very serious problem with Safety pensions for police, fire and prison guards who earn on average $150,000 to $200,000 a year in salary, benefits and built-in overtime and then retire at age 55 at 90%!!!!! This is actually the major reason California and virtualy every city and county in California is now insolvent and it will very soon become a catastrophe when we have to support more retired cops, fire fighters and prison guards then are actually working, at 90%.

Bill

March 2, 2009 12:16 PM

Some have argued for many years that the use of taxes paid by people without defined-benefit retirement plans to augment platinum-plated medical, vacation, sick-leave, holiday and retirement plans for public "servants" is unfair. Who's responsibility is it to keep the trough full?

saylor

March 2, 2009 12:48 PM

California Pension system is truly insane. They also have this thing called the Retired Annuitant. Where you can retire at 90% wait a year then come back paid as a RA and ALSO collect the pension. That is absolutely nutty. I wish I had that kind of retirement. Perhaps I should get a GED and become a prison gaurd or cop. How much do they pay teachers? Pediatricians only make like 90k.

Jose

March 2, 2009 4:06 PM

Pls, if only 50% of this information ist true, please show me the way to copy it
Th

Post a comment

 

About

How can you manage smarter? Bloomberg Businessweek contributors synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.

BW Mall - Sponsored Links

Buy a link now!