NIRS Updates Pensionomics Report on the Economic Impact of Defined Benefit Pension Expenditures

In September 2016, the National Institute on Retirement Security (NIRS) published its report, Pensionomics 2016: Measuring the Economic Impact of Defined Benefit Pension Expenditures.  The biennial study finds that public and private pension benefits offer significant support for the U.S. economy.  According to the study, each dollar of benefit paid to retirees supported $2.21 of the total U.S. economic output.  In addition, these pension benefits help to stabilize the economy since retirees with monthly pension income continue spending on basic needs, even during economic downturns.

During the fiscal year ending in 2014, the study reports:

  • Public and private pension plans provided about $519.7 billion in benefits to nearly 24.3 million retirees and beneficiaries.  Of this amount, $253.0 billion was paid to 9.6 million state and local government retirees and beneficiaries; $78.8 billion was paid to 2.6 million federal government beneficiaries; and $187.9 billion was paid to 12.1 million private sector beneficiaries;
  • These benefits supported more than $1.2 trillion in the total U.S. economic output and provided an estimated $627.4 billion in value added to the national economy; and
  • This, in turn, supported approximately 7.1 million American jobs paying more than $354.8 billion in total compensation, as well as $189.7 billion in annual federal, state, and local tax revenues.  The largest employment impacts were in retail trade, health care, real estate, and food service industries.

The study also finds that over the period from 1993 to 2014, government (i.e., taxpayer) contributions to public pension plans averaged 24.1% of the total annual plan receipts, with the remainder coming from investment earnings (64.4%) and employee contributions (11.5%).  As a result, the study estimates that every dollar contributed by taxpayers to public pension funds supports an estimated $9.19 in total economic output.

The analysis was conducted using data from the U.S. Census Bureau and input-output modeling software (IMPLAN) to assess the economic impact.  In addition to providing national estimates of economic activity, the report also estimates the economic impact of public pensions in all 50 states and provides fact sheets for each state.

The report is available here.

A map with fact sheets for each state is available here.

S&P Publishes State Pension Funding Report

 On September 12, 2016, S&P Global Ratings published its report, U.S. State Pensions: Weak Market Returns Will Contribute To Rise In Expense. According to the report, “After losses in 2008 and 2009, most U.S. state pension plans have not been able to recover to funded levels seen in the early 2000s. Investment returns in 2015 and 2016 are not going to make that path any easier.” It also stated, “Continued trends of slow revenue growth, growing liabilities, and higher future pension contribution costs could amplify an already constrained budget environment for many states.”

The study is based on valuation data compiled by S&P through 2014 for all state-sponsored plans in the 50 states as reported in their 2015 comprehensive annual financial reports (CAFRs).  In its pension analysis, S&P measured the states’ pension funded ratios; compared net pension liability per capita in 2015 under the new Governmental Accounting Standards Board (GASB) reporting standards with unfunded actuarial accrued liability (UAAL) per capita in 2013 under the previous GASB accounting; and compared total annual plan contributions to accounting measures for plan funding progress.

The 2015 survey report included reported pension liabilities under GASB Statements Nos. 67 and 68, effective for employers and governmental non-employer contributing entities for fiscal years beginning on or after June 15, 2013 and June 15, 2014, respectively. At the end of fiscal year 2015, the median funded ratio was 74.6%.   The majority of plans reported a decline in funded ratios between fiscal years 2014 and 2015 due to relatively weak market performance and higher reported liabilities.

The report concludes that, “as the challenge of meeting investment returns and contribution hikes intensifies, states might also resume the quest for pension reform to manage rising pension liabilities, despite a road fraught with legal hurdles and setbacks. How states and plans manage these pressures and craft funding policies to meet a realistic estimate of the long-term pension liability is important to future state credit quality.”

The report is available on NASRA’s website here.

Economic Policy Institute Reports Teachers’ Pay Gap Continues to Widen

 In August 2016, the Economic Policy Institute (EPI) released its report, The Teacher Pay Gap Is Wider Than Ever. According to the report, public school teachers’ weekly wages were 17.0% lower than those of similar workers in 2015 as compared with 1.8% lower in 1994. Teachers’ total compensation (wages and benefits) was 11.1% lower than similar workers in 2015 as compared with 0.1% in 1994. The analysis is based on individual data from the Current Population Survey (CPS) from the Bureau of Labor Statistics (BLS). The teachers studied were elementary, middle and secondary school teachers who are full-time workers between the ages of 18 and 64.

Key findings include:

  • Public school teachers’ average weekly wages (inflation adjusted) have decreased $30 per week from $1,122 in 1996 to $1,092 in 2015. By comparison, the weekly wages of all college graduates increased from $1,292 in 1996 to $1,416 in 2015.
  • For female teachers, the relative wage gap changed significantly. In 1960, they earned 14.7% more than similar female workers as compared with a decrease of 13.9% in 2015.
  • For male teachers, the relative wage gap is much larger. In 1979, the wage gap was 22.1% and increased to 15.0% in the mid-1990s and fell to 24.5% in 2015.
  • Some of the differences in the widening wage gaps may be attributed to a tradeoff between wages and benefits. In 2015, as a portion of total compensation, non-wage benefits were more important for teachers at 26.6% as compared with other professionals at 21.6%.
  • For experienced teachers, the relative wage has steadily worsened from 1.9% in 1996 to a decrease of 17.8% in 2015.
  • For unionized teachers, the relative wage gap was 6.0% and for non-unionized teachers was 25.5% in 2015.

The report concludes, “If the policy goal is to improve the quality of the entire teaching workforce, then raising the level of teacher compensation, including wages, is critical to recruiting and retaining higher-quality teachers. Policies that solely focus on changing the composition of current compensation (e.g., merit or pay-for-performance schemes) without actually increasing compensation levels are unlikely to be effective. Simply put, improving overall teacher quality requires correcting the teacher compensation disadvantage.”

The report is available here.