State and local lawmakers have been looking to make cuts to public pension plans to reduce costs. But new research shows that these potential short-term savings could come at a steep long-term cost.
The National Conference on Public Employee Retirement Systems (NCPERS) has found that defined benefit pension plans generate far more in state and local tax revenue than they cost taxpayers. In 2023 alone, pensions generated nearly $662 billion in tax revenues and contributed nearly $3 trillion to the U.S. economy.
Yet the political appetite for shifting to defined contribution plans like 401(k)s persists. NCPERS warns that the trend could undermine state and municipal revenues.
Michael Kahn, NCPERS director of research and lead author of the study, said in a statement that “public pensions are not a burden for taxpayers but instead are a revenue generator that should not be overlooked,” noting that “public pensions produced $445.2 billion more in state and local revenues than taxpayers contributed” in 2023.
Kahn and his co-authors warn that if public pensions were “significantly scaled back, the cost of delivering the same level of public services could rise, shifting a greater burden onto taxpayers.”
Hank Kim, executive director and counsel for NCPERS said in the release announcing the report that “scaling back pensions could have unintended consequences,” and policymakers should instead “be strengthening these systems as long-term investments in our communities.”
Kim added: “For every dollar taxpayers contributed in 2023, pensions generated $13.41 in economic activity. That's a return that benefits everyone.”
Policy Reversals and Real-World Fallout
NCPERS cites a 2018 case study by the National Institute on Retirement Security detailing how eliminating pensions for public safety workers in Palm Beach, Fla., triggered a mass exodus, exacerbating recruitment and retention problems. Those issues have since become central to many state and local debates over workforce readiness, particularly in policing, teaching, and emergency response.
“Employers value retention,” NIRS ED Dan Doonan told Institutional Investor earlier this year. “That’s what pensions can deliver that other benefit offerings don’t do as well.”
The data also show that in 2023, 43 states were “net revenue positive” from pensions; meaning, their pension systems generated more in tax revenue than they cost. Only seven states — Connecticut, Hawaii, Indiana, Louisiana, New Hampshire, New Jersey, and Rhode Island — saw a negative balance, often due to above-average contributions made to improve long-term funding.
Pension spending fuels local economies in two ways: retirees spend money on local businesses and boost tax revenues, while pension funds invest in broader economic growth (sometimes in their own backyards). By dismantling or weakening pensions, states may not only disrupt the retirement security of millions of public workers but also damage the very revenue streams they rely on to fund core services.
“Dismantling public pensions would not reduce costs; it would impose new ones,” the report concludes. “The data suggest that curtailing pensions could increase taxpayer burdens, while also weakening retirement security for public servants and reducing economic activity at the state and local level.”
