Pensions obviously benefit retirees, their dependents and their beneficiaries. But while it may be less obvious, pensions also benefit society writ large — to the tune of trillions, with a T.

The National Institute on Retirement Security (NIRS) every two years updates its Pensionomics analysis that measures the economic “ripple effect” of payments from defined benefit plans. In “Pensionomics 2023: Measuring the Economic Impact of DB Pension Expenditures,” the NIRS quantifies the broader benefits of DB plans; namely, the economic impact of pension spending on the U.S. economy.

How great is that effect? The NIRS reports that in 2020, more than $600 billion was paid to retirees in the United States. But that was an investment in more than just those individuals and their beneficiaries, the NIRS says — those pension dollars translated to more than twice that figure in U.S. economic output.

A Closer Look

In 2020, the NIRS reports, DB plans had the following effects on individuals and on the nation as a whole.

Individuals. In 2020, $612.6 billion in pension benefits were paid to 24.6 million retired Americans, including:

• $334.8 billion paid to 11.5 million retired employees of state and local governments and their beneficiaries;
• $90.3 billion to 2.7 million federal government beneficiaries; and
• $187.4 billion to 10.4 million private sector beneficiaries, including:
• $140.2 billion in benefits to 6.4 million retirees in single employer plans, for an average benefit of roughly
• $21,813 per year, or $1,818 per month; and
• $47.2 billion to 4 million beneficiaries of multiemployer plans, for an average benefit of $11,934 per year, or
• $994 per month.

Private-sector pension plans covered 34.4 million Americans, including 10.4 million retired Americans and other beneficiaries in 2020. With total plan assets of $3.5 trillion in 2020, private DB pensions paid out some $187.4 billion in pension benefits to retirees and beneficiaries. The average private sector pension benefit was $1,504 per month, or $18,050 per year.

Pension Plans’ Economic Impact

Pension plans can support economic activity through several channels, NIRS researcher Ilana Boivie outlined in a Jan. 11 NIRS webinar. For instance, retirees’ expenditures create incomes for others in the economy and the investment of pension assets provides capital to businesses to develop products, invest in new technologies, and create jobs.

Not only that, pension plans employ people. In fact, in 2020, DB plans supported 6.8 million American jobs, and generated just over $422 billion in labor income. That includes millions of jobs in the private sector.

Impact of Pension Dollars

“You’re getting more than twice the impact for every dollar,” remarked Boivie. More specifically, each dollar paid out in pension benefits supported $2.13 in total economic output nationally, and each taxpayer dollar contributed to state and local pensions supported $7.89 in total output nationally.

Economic Activity. In 2020, DB plans supported $1.3 trillion in total economic activity. In the private sector, that came to almost $400 billion, which broke down in this manner:

Multiemployer plans: $99,901,109,159

Single-employers: $296,775,819,806
Total: $396,676,928,965

Tax Revenue. DB plans also benefitted government tax coffers. In 2020, NIRS reports that an estimated $157.7 billion in total tax revenue was attributable to public and private pension benefits; that includes $62.9 billion in federal tax revenue and $94.9 billion in state and local tax revenue.

The Bottom Line

Pension plans provide not only reliable income for almost 25 million Americans; they also generate economic benefits “that reach well beyond those who earned benefits during their working years,” says the NIRS. “Because pensions supply secure income to retirees, pensions provide local economies with stable sources of revenue,” it says.

Economic gains as a result of pension plans are “considerable,” says the report, and retirees’ spending provides “vital revenue” to local businesses and local workers.

Big picture, pension benefits “play an important role in providing a stable, reliable source of income regardless of economic climate,” says the NIRS.

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