Pension spending from private and public sector defined benefit (DB) plans powered the economy in the last years, finds the latest research from the National Institute on Retirement Security (NIRS).
According to the report, “Pensionomics 2025: Measuring the Economic Impact of Defined Benefit Pension Expenditures,” pension spending generated $1.5 trillion in total economic output and supported 7.1 million jobs across the U.S in 2022.
The findings support the idea that pension spending supports economies countrywide—NIRS reported that spending also added $224.3 billion in tax revenue at the federal, state, and local levels. Each dollar paid out in pension benefits also supported $2.28 in total economic output nationally.
Pensioners largely spent their money on food services, healthcare, and retail trade sectors.
“Pensions are important to the financial security of retirees, but it doesn’t stop there,” said Dan Doonan, NIRS executive director and report co-author. “Pension benefits remain a major part of our economy today because retirees know they’ll receive pension income every month and aren’t fearful of spending it on basic necessities like housing, food, and healthcare. That spending supports local economies and creates jobs.”
Additional findings show that $680.6 billion in pension benefits were paid to 26.3 million retired Americans, with 371.6 billion allotted to 12 million retired state and local government employees and their beneficiaries; $217.4 billion rewarded to 11.5 million private sector beneficiaries; and $91.5 billion paid to some 2.7 million federal government beneficiaries.
The findings come as a new analysis by Willis Towers Watson (WTW) shows that the funded status of corporate DB pension plans only increased two-percentage points from last year—at 100% compared to 98%—despite U.S. equity market gains and rising long-term interest rates.
This is likely because pension plan assets tend to hold more bonds instead of equity investments to support liability-hedging strategies that provide funded status stability, said Joseph Gamzon, managing director of Retirement at WTW.
Another report from Equable, a nonprofit that provides public pension education and research, argues that the state of pensions today continues to be fragile, with an average market valued public pension funded ratio increase of 80.2%, up from 75.5% the year prior. This marks 17 consecutive years with an average funded ratio below 90%.
Other state and municipal pension plans in the U.S. are in even dire condition, Equable’s report observes. For example, in California, the Public Employees’ Retirement System is 74.22% funded while the City of Los Angeles Fire and Police Pension Plan is 101.61% funded.
About 21% of state pension plans continue to report a “Resilient” funded status, at 90% or better for three years continuously, and a quarter of the states have an average 2024 funded ratio above 90% for their plans collectively, Equable reports. However, the research shows that a majority of U.S. pension plans have a “Fragile” (90% to 60%) or “Distressed” (60% or less) funded status.
SEE ALSO:
Pension Funded Status Improved ‘Modestly’ in 2024
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
