Economic Effects of Pensions

Studies reveal that public pension benefits have positive effects on local and state economies. In 2023, state and local government retirement systems in the U.S. distributed $175 billion more in benefits than they received in taxpayer-funded contributions. Personal income from state and local government pensions exceeds the personal income derived from the nation's farming, fishing, logging, and hotel/lodging industries combined. The expenditure of public pension benefits results in an economic impact that reaches every city and town of every state.

State and Local Studies

Analyses of the impact of public pension payments on their state's economy:

• Alabama: Economic Impacts of RSA, PEEHIP, and SEIB Benefit Payments on Alabama, Retirement Systems of Alabama, November 2007

• California: Economic Impacts of CalPERS Pensions in California, FY 22-23

• California: CalSTRS Economic Impact Study, August 2013

• California: Economic, Fiscal, and Social Impacts of LACERA Pensioners, December 2022

• Colorado: Colorado PERA Economic and Fiscal Impacts, July 2020

• Illinois: 2014 Economic Impact Study, Illinois Municipal Retirement Fund (May 2014) and TRS Benefit Payments by Illinois Legislative District & Their Impact on the Illinois Economy, Teachers' Retirement System of the State of Illinois, May 2, 2008

• Indiana: Economic Impact of PERF Payments - Fiscal Year 2008, Indiana University - Kelley School of Business, 2008

• Louisiana: Pensions in the Parishes, Louisiana Budget Project, 2017

• Minnesota: Measuring the Impact of Minnesota's Retirement Systems, Andrea Lubov, Ph.D., March 2008

• Mississippi: Report to PERS: The Impact of Payments to Beneficiaries by the Mississippi Public Employees Retirement System, Mississippi State University (January 2008)

• Missouri: 2017 Economic Impact Report, Missouri Local Government Employees Retirement System

• Nevada: Economic Impact for Nevada, National Institute on Retirement Security, March 2013

• Ohio: Economic Impact Analysis of The Ohio Police & Fire Retirement System in 2018, December 2019

• Oregon: Economic Impact Study, Oregon Public Employees Retirement System, January 2009

• South Dakota: South Dakota Retirement System's Economic Impact on the State's Economy, Stuefen Research, LLC, June 5, 2007

• Texas: The Impact of Annuity Payments by the Teacher Retirement System on Texas and Local Areas Within the State: 2014 update

Taxation of Retirement Income

Forty-three states tax individual incomes, and most provide full or partial exclusions for retirement income. Retirement income is generally received in the form of pension benefits for state or local or private sector service, Social Security, or federal government or military benefits. Tax exclusions for retirement income vary among states and are influenced by factors including age, residency while receiving benefits, and marital status, among others. A compilation of state policies governing exclusions for retirement income can be accessed via the link below. 

• Taxes in Retirement, Kiplinger, January 2023