In its 2025 update of its 2018 report, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk,” the National Conference on Public Employee Retirement Systems found that public pensions produced $445.2 billion more in state and local revenues than taxpayers contributed in 2023.
According to the update, state and local public pensions are a “powerful economic engine,” generating more than $660 billion and contributing nearly $3 trillion in economic output in 2023. While policymakers grapple with decisions about the future of public pension offerings—whether to transition to defined contribution retirement savings plans that shift investment risks to employees, reduce benefits or increase employee contributions—NCPERS’ research found dismantling public pensions to be counterintuitive.
During a July 15 webinar, Michael Kahn, NCPERS’ director of research and the author of the report, shared three “lines of attack” from opponents of public pensions: “unfunded liabilities are too high—taxpayers can’t afford public pensions; public pensions are taking away money from important public services; and public pensions are fiscally unsustainable.”
But Kahn said research shows there is no evidence to substantiate the claims. However, in a follow-up email to PLANSPONSOR, he said his report is a direct response to the first claim, noting that unfunded liability figures can be compared to one-year snapshots of state and local revenue, rather than a multi-decade time horizon. Kahn cited NCPERS’ 2023 “Do Pension Expenditures Impact Education Spending?” study to argue that the “squeeze” on funding for important public services is a function of state and local revenue systems being out of sync with the economy, not because of public pension expenditures. Lastly, Kahn said NCPERS’ “Enhancing Sustainability of Public Pensions” report, which concluded that unfunded liabilities can be stabilized at a moderate cost, rebukes the notion that public pension benefits are fiscally unsustainable.
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“Actually,” Kahn said, “taxpayers cannot afford not to have public pensions.”
NCPERS’ report noted that while reducing benefits or closing pension funds may seem to save money in the short term, there are long-term costs to doing so. Closing public pension funds could reduce both economic activity and public services, impose higher tax burdens, and diminish retirement security for public servants, the research found.
More states have also become net revenue positive over the past decade, meaning their public pension systems contribute more to state and local governments than they cost in taxpayer-funded contributions from public employees. In 2023, 43 states saw net revenue gains from public pensions, an increase of five states since 2016. For several of the seven states with net negative revenue—meaning their public pensions contribute less to state and local revenues than they cost in taxpayer-funded contributions from government employees—the negative margin was small or influenced by above-average contributions aimed at improving plan funding.
“Policymakers should take note: Scaling back pensions could have unintended consequences,” said Hank Kim, NCPERS’ executive director and counsel, in a statement. “Instead, we should be strengthening these systems as long-term investments in our communities. For every dollar taxpayers contributed in 2023, pensions generated $13.41 in economic activity. That’s a return that benefits everyone.”
During the webinar detailing the report, Kahn shared that policymakers have been scaling back public pension benefits over the last two decades by increasing employee contributions and closing pension plans, especially to new hires. What policymakers have not realized, Kahn said, is that scaling back public pensions will undermine state and local economies, and, in turn, tax revenues. Taxpayers will end up paying more taxes to receive their current level of public services.
“When retirees spend their pension checks, it grows local economies,” Kahn explained. “Similarly, when pension funds invest their assets, [economies grow], … and when the economy grows, revenues grow.”
The report cautioned policymakers to evaluate the economic impact of public pensions holistically before considering reforms. Over the past decade, Kahn said, the economic and revenue impact of public pensions has become even more pronounced.
“The findings of this report underscore the broader value of public pensions,” Kahn said during the webinar. “They served not only as a source of retirement security for teachers, first responders and other public servants, but also as a driver of local economic activity and government revenues. As policymakers consider the future of retirement systems, a full accounting of these contributions is essential.”
Tags: NCPERS
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