Pensions boosted economy during pandemic

NIRS study: Defined benefit plan spending contributed $1.3 trillion during 2020

By Michael Pramik, Ohio Public Employees Retirement System

Feb. 2, 2023 – Private- and public-sector defined benefit pensions contributed a whopping $1.3 trillion to the U.S. economy during the COVID-19 pandemic, an industry report states.

The National Institute on Retirement Security’s Pensionomics study indicates that pensions supported nearly 6.8 million jobs and added more than $157 billion to government accounts during 2020.

In Ohio, expenditures stemming from state and local pensions created $21.7 billion in total economic output, a state fact sheet on Ohio states.

“During this time, pension income was crucial for millions of Americans,” said Dan Doonan, NIRS executive director and the report’s co-author. “Retirees with pensions knew that their retirement income was stable and secure, despite severe economic instability. Pensioners could continue spending at normal rates, which supported millions of jobs across the nation during a time of massive layoffs.”

The report, “Pensionomics 2023: Measuring the Economic Impact of Defined Benefit Pension Expenditures,” calculates the national economic impacts of U.S pension plans, as well as the impact of state and local plans on a state-by-state basis. It quantifies the economic impact of the pension payments and measures the effect they have in our country.

It’s the seventh iteration of the Pensionomics report, which NIRS has produced every two years since 2009.

Nearly 25 million retired Americans and their beneficiaries in the public and private sectors receive a pension, NIRS said. Because pension income lasts through retirement and provides stable monthly income, retirees can continue to spend their income at normal rates.

This study found that $612.6 billion in pension benefits was paid to 24.6 million retired Americans in 2020, including:  

• $334.8 billion paid to some 11.5 million retired employees of state and local government and their beneficiaries (typically surviving spouses);
• $90.3 billion paid to some 2.7 million federal government beneficiaries;
• $187.4 billion paid to some 10.4 million private sector beneficiaries, including:
• $47.2 billion paid out to 4.0 million beneficiaries of multi-employer pension plans, and
• $140.2 billion paid out to 6.4 million beneficiaries of single-employer pension plans.

Expenditures made from those payments collectively supported:

• 8 million American jobs that paid $422.2 billion in labor income
• $1.3 trillion in total economic output nationwide
• $738.5 billion in value added (GDP)
• $157.7 billion in federal, state, and local tax revenue

Pension expenditures have large multiplier effects, NIRS said. Each dollar paid out in pension benefits supported $2.13 in total economic output nationally.

The Pensionomics study included information specific to individual states. The information gathered on Ohio pension benefits indicated a significant amount of economic activity. The spending rippled throughout the state’s economy, creating a multiplier effect, as each dollar paid out in pension benefits supported $1.34 in total economic activity.

Further, expenditures stemming from state and location pensions supported 129,688 jobs that paid $7 billion in wages and salaries. They created $21.7 billion in total economic output and generated $2.8 billion in federal, state and local taxes.

Michael Pramik

Michael Pramik is communication strategist for the Ohio Public Employees Retirement System and editor of the PERSpective blog. As an experienced business journalist, he clarifies complex pension policies and helps members make smart choices to secure their retirement.