California pension beneficiaries send billions in economic ripples across the state

Researchers recently found former state and local government employees contributed $28 billion in wages and salaries over the span of a year across California through pension spending.

Those receiving benefits from CalPERS and other California pension plans in 2022 supported nearly 400,000 jobs in various industries such as healthcare and restaurants, researchers found.

From casual eateries to sit-down restaurants, the service industry was the largest beneficiary of pension spending. Hospitals were a close second. Pension payments made to California resident retirees contributed $17 billion in local, state and federal taxes.

Every dollar paid to pension recipients in California yielded $1.27 in economic benefits for the state, NIRS researchers found.

Additionally, NIRS researchers found that California taxpayers are a relatively minor financing source for California pension plans: For every $1 taxpayers contributed to government retirement benefits, the pension plan made $4.30, largely from employee contributions and investments.

The National Institute on Retirement Security, a Washington D.C.-based retirement research nonprofit, studied the economic ripples of pension spending across the country using the most recent data available. In 2022, tens of millions of retired Americans received a total of $681 billion in pension benefits, 55% of which went to retirees from state and local governments.

Researchers studied how 2022 payments from defined benefit pensions — which pay retirees based on their salary history, age and years of service — impacted state economies. Compared to other states, California’s pension beneficiaries produced the largest economic output — $87 billion — for the state’s economy, according to the California fact sheet associated with the report.

The average pension benefit received was $42,177 per year in California, according to NIRS. In 2022, more than 1.6 million California residents received payments from local and state pension plans, totaling $68 billion.

Pensions help retirees maintain their standard of living and California’s economy through their spending in communities across the state, said Dan Doonan, one of the report’s authors and NIRS’ executive director, in a statement. Eligible retirees can often receive other retirement benefits, such as Social Security, in addition to pensions.

Much like Social Security, Doonan said, pension plans can be an economic stabilizer.

“If markets drop or the economy slows down, retirees know their benefits will be reliable,” Doonan said. “Whereas employers or savers may pull back during a slowdown, those receiving pensions have little reason to do so.”