US - State and local government pension plans have a total economic impact of more than US$358bn, a report by the National Institute on Retirement Security reveals.
It said each taxpayer dollar invested in state and local pensions supported $11.45 in total economic activity, while each dollar paid out in benefits supported $2.36 in economic activity.
NIRS policy analyst and report co-author Ilana Boivie said: "This study measures the magnitude of the 'multiplier effect' of state and local pensions in the U.S. economy. The multiplier effect occurs because one retiree's spending becomes another person's income."
Boivie explained: "For example, a retired teacher may spend his or her pension check to pay the gas bill, buy a car, or make purchases at the local pharmacy, grocery store, or movie theatre.
"As a result of the retiree's spending, businesses see an increase in their income, which then enables businesses to spend and create jobs. Each successive round of spending ripples through the economy to generate an economic impact that is much larger than the initial spending by the retiree."
NIRS executive director and report co-author Beth Almeida added: "Understanding the considerable economic impact of state and local pensions is vital given the severe financial crisis facing America.
"Economists have long known that the steady monthly income provided by pensions can act as an 'automatic stabilizer.' That is, retirees with a stable monthly pension income can continue to spend on basic needs, even during an economic downturn.
"In contrast, retirees relying solely on plummeting 401(k)s or individual retirement accounts likely are forced to retreat from spending precisely at the time when the economy most needs stimulus."
The analysis was conducted using data from the U.S. Census Bureau and IMPLAN, an input-output modelling software widely used by industry and governments analysts.
This week's edition of Professional Pensions is out now.
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