Private-defined benefit pension plans continue to disappear but even as they dwindle, the National Institute on Retirement Security’s Pensionomics 2016 report shows that they still have quite a ripple effect on the U.S. economy.

“Over 24 million American retirees receive benefits from pension plans. In 2014, they received over a half trillion dollars in benefit payments in that year,” says Diane Oakley, executive director for the National Institute on Retirement Security.

“Retirees with reliable pensions can maintain spending regardless of the ups and downs in the economy. They act as an economic stabilizer,” she says.

The U.S. saw that particularly between 2009, at the heart of the Great Recession, and 2012, when the country began coming out of it.

Also see: “Employers need to communicate benefits to attract jobseekers

According to NIRS, expenditures by retirees receiving public and private DB pension benefits generated $1.2 trillion in economic output nationwide in 2014.

“Given that our economy at the end of 2014 was a little bit over $17 trillion and consumer spending in the economy generated about $12 trillion of economic activity, what we clearly can see is spending from retirees was about 10% of the consumer-driven economy,” she says.

The long life of retirement

The report also found that retirees who received a pension supported 7.1 million jobs that paid $354.8 billion with their spending habits, which is about half the level of jobs replaced in the economy since the Great Recession ended.

NIRS asserts that for every dollar that retirees spent, $2.21 was generated in total economic output nationally. Each taxpayer dollar contributed to state and local pensions supported $9.19 in total output nationally.

See also: “Research paints bleak picture of employee finances

Having that guaranteed form of income in retirement means that retirees aren’t just sitting home doing nothing. They are out spending that money, which benefits every state and local economy across the country, according to the report. Retirees take their pension check and purchase goods and services in the local community, like food, clothing and medicine. They also support a booming real estate market across the country.

“In short, pension spending supports the economy and jobs where retirees reside and spend their benefits,” the report states. “Pension expenditures may be especially vital to small or rural communities, where other steady sources of income may not be readily found if the local economy lacks diversity,” NIRS says.

Jennifer Brown, author of the NIRS report and manager of research at NIRS, points out that in 2014, the average annual pension benefit was $21,413. Overall, public and private pensions paid out $519.7 billion in benefits in 2014.

Of that, $187.9 billion came from private sector pension plans; $253 billion came from state and local pension plans; and $78.8 billion came from federal pension plans.

“That is a significant amount of money poured into the economy and spent locally,” Brown says.

Private pension plans are organized differently than public pensions. In state and local government pension plans, both the employee and employer contribute to the retirement plan. In private pensions, the plans are typically funded by the employer.

“In requiring that employees share the cost of their pension, public plans are similar to the approach adopted in 401(k) plans where private sector employees contribute to their accounts,” NIRS says.

But DB pensions differ from DC plans in that they “provide broad-based coverage, secure money for retirement, a lifetime income, and special protections for spouses,” NIRS find.
Those 24 million retirees who received pension benefits in 2014 spend more than 30% of their household resources in retirement on housing costs, Oakley says. Their spending generated almost 400,000 real estate industry jobs nationwide.

The trend from defined benefit pension plans to defined contribution plans in the private sector is just starting to be felt in the industry, Oakley says. There was a 600,000 retiree decrease in the number of retirees receiving benefits from private sector DB plans in 2014. Part of that can be attributed to retirees who pass on and are no longer receiving a benefit. They are also not being replaced by others who receive a private DB pension plan, adds Oakley.

Many private large corporations have frozen their defined benefit plans or have closed them entirely, giving retirees the choice between taking a lifetime annuity or a lump sum payment. The number of companies de-risking their pension plans is rising as interest rates go up and the stock market has rebounded. Those market conditions make it cheaper for a company to offload volatile pension plans from their books.

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