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: The Impact of CalSTRS Benefit Spending on California's Economy, March 2025
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

Other Resources

Pensionomics 2023, National Institute on Retirement Security
State Fact Sheets for state employee and teacher pension systems, National Institute on Retirement Security
Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk, 2020 Update, National Conference of Public Employee Retirement Systems, April 2020
The Economic Benefit of Public Pension Dollars in Small Towns and Rural America, National Institute on Retirement Security, March 2020

Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.

What's New at NASRA: Public Pension Investment Return Assumption Brief Updated

NASRA’s latest update to standing issue briefs, Public Pension Plan Investment Return Assumptions underscores the critical role the investment return assumption plays in the financial health of public pension plans. Of all actuarial assumptions, it has the greatest impact on plan funding levels and cost. This brief traces how a decade of low interest rates and inflation, beginning in 2009, prompted many plans to reduce their long-term expected returns in line with more modest capital market projections. However, since inflation began rising in early 2021, the trend toward lowering return assumptions has largely paused. While reducing a plan’s assumed return can increase both costs and unfunded liabilities, setting this assumption is a careful, thorough process. It draws on expert input from actuaries and investment professionals and is guided by actuarial standards of practice.