Study: Public Pensions Provide Economic Benefits for All

A recent study by the National Conference on Public Employee Retirement Systems (NCPERS) found that public pensions like Colorado PERA generate local and state tax revenue that far exceed taxpayer contributions to those plans.

The study, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk,” takes an in-depth look at the costs associated with public pensions, the economic activity they generate, and the implications of shifting workers to other types of retirement plans.

Background

Conversations around the value of public pension plans often focus on the cost of providing a lifetime retirement benefit. Several states have cited potential cost savings in closing or freezing their public pensions in the past, and those states have since faced challenges recruiting and retaining public employees.

The study authors argue that while public pensions can seem like a financial liability when viewed up close, a more comprehensive analysis of their financial impact shows they are in fact significant drivers of economic activity that more than make up for their cost.

How pensions drive economic activity

The NCPERS study highlights two primary ways pensions drive economic activity:

• Investments: Public pensions invest their funds in businesses and the financial markets, which in turn create jobs and stimulate economic growth. For every $1,000 invested by a pension fund, NCPERS estimates the economy grows by approximately $2,360. In total, pension investments added an estimated $1.9 trillion to state economies in 2023 and generated approximately $453 billion in state and local tax revenue, according to NCPERS.
• Retiree spending: Retirees spend their retirement income on goods and services, and businesses and their employees then turn around and spend that money as well, keeping it circulating and growing throughout the community. NCPERS calculates that retiree spending contributed $980.7 billion to the U.S. economy and generated approximately $208.9 billion in state and local tax revenue in 2023.

Combining the effects of both investments and retiree spending, NCPERS estimates that every dollar taxpayers contribute to public pensions generates $13.41 in economic activity. That means $216.7 billion in taxpayer contributions to pension plans nationwide in 2023 created $661.9 billion in tax revenue and $2.9 trillion in total economic impact, according to NCPERS.

The impact of public pensions in Colorado

Here in Colorado, NCPERS estimates pension assets (including Colorado PERA and others) totaled approximately $70.3 billion in 2023 with about $7 billion in benefit payments throughout the year. Those investments and benefit payments resulted in approximately $25.8 billion in total economic output and generated more than $4.6 billion in state and local tax revenue. NCPERS estimates Colorado’s total net revenue gain from public pensions at $1.78 billion.

As the state’s largest public retirement plan, PERA alone has a significant impact. In 2023, PERA paid $4.56 billion in benefits to 114,432 retirees living in Colorado, resulting in $7.1 billion of the state’s total economic output. Those PERA retirees paid nearly $382 million in state and local taxes on their benefits, supporting schools, roads, and other vital services.

READ MORE: Measuring the Impact of $4.5B+ in Annual Retirement Benefits in Colorado

Who benefits from pensions?

As the NCPERS study concludes, reducing benefits or closing pension plans may yield short-term savings, but those actions carry unintended consequences: less money for state and local governments, higher turnover in the public sector, and a less secure retirement for state workers in the long run.

“If there were no public pensions, taxpayers would have to pay more to receive the same level of services,” the NCPERS study authors stated. “Dismantling public pensions would not reduce costs; it would impose new ones.”

At Colorado PERA, we not only provide retirement security to 1 in 10 Coloradans, but contribute to the economic wellbeing of the whole state. Policymakers and stakeholders should view pensions as vital economic engines that benefit everyone by contributing to prosperity at the local, state and federal levels.