Public pension plans are beneficial to taxpayers, according to a new report that suggests tax revenues created through retiree spending and pension investments may actually exceed what the public pays into them.

The report, from a series by the National Conference on Public Employee Retirement Systems in Washington, looks into several arguments used to discredit public pension funds in the United States.

“Critics often advance the false imperative that cities and states should be able to cover their long-term pension liabilities with current revenues,” said Hank Kim, the organization’s executive director and counsel. “But that’s not how advance funding models work, whether for public pensions or other long-term goals such as retirement or college savings.”

Read: How does Canada’s public pension system measure up globally?

Michael Kahn, the organization’s research director and author of the report, offers as an example a couple funding their child’s education. The parents, he noted, would have an unfunded liability for many years if they established the college fund at their child’s birth. “Over time, investment income and ongoing contributions would reduce this unfunded liability,” he said. “With proper planning, the unfunded liability can be reduced to zero, and sometimes a surplus is created. That is how pensions work.”

The report also explores historical advantages that make public pensions resilient and able to bounce back and grow even after recessions. Indeed, the report refers to data from the U.S. census that shows the continued growth of pension fund assets, even following the recessions of 2001 and 2008. “It shows that after each recession, pension fund assets bounced back and kept growing.”

Read: Canada facing $13.4-trillion retirement savings deficit by 2050

The report also shows how taxpayer contributions to public pensions are equal to or less than the revenues generated by investments in pension funds and spending by pension beneficiaries. Taxpayers, it noted, only pay about 20 cents on the dollar for pension benefits, with the remaining 80 cents coming from investment earnings and employee contributions.

“If we take into account tax revenue generated as a result of pension spending and investment, the 20-cents-on-the-dollar tax burden is wiped out. Thus, pension funds pose little, if any, burden on taxpayers because of the advantages of advance funding,” the report noted.

To contradict the argument for dismantling public pension plans, the report refers to previous research conducted by the National Conference on Public Employee Retirement Systems, a trade association that represents more than 550 funds throughout the United States and Canada. By analyzing data from all 50 states over the last 30 years, it found that dismantling public pensions would be a bad deal for taxpayers as a result of rising income inequality, a sluggish economy and greater economic volatility. In fact, it would inflict $3 trillion in damage on the U.S. economy by 2025, according to the report.

Read: 21% of Canadians believe public pensions will be defunct when they retire: report

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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