NCPA - National Center for Policy Analysis

California Retirement System Makes False Claims

October 8, 2015

A report released by the California Public Employee Retirement System (CalPERS) claimed that its payments made to retired government employees, through an economic "multiplier effect," supported 104,974 jobs. The study also asserted that reducing pension benefits for public employees would harm the overall California economy.

The claims supported by this study are nothing new; many other retirement systems around the country have published studies stating that the benefits that they pay stimulate the economy and create jobs.

The logic of these studies relies on the following premises:

  • Retirees spend their benefits on items such as food, housing and medicine. The business owners who receive retirees' money respend it, and so on down the line.
  • Thus, a single dollar of pension benefits creates $2.02 in total economic activity.
  • However, this economic model fails to count economic costs as well as economic benefits.

The main problem with the CalPERS report is that every single dollar of benefits comes from a dollar that taxpayers or government employees contributed to the program or from the interest earned on those contributions.

If CalPERS contributions had not been made then both public employees and taxpayers would have had more money in their pockets and the same economic multiplier effects would have applied.

The conclusion is that the economic costs of supporting CalPERS are just about equal to the economic benefits of the checks it issues to retirees.

Source: Andrew G. Biggs, "No, public pensions don't boost economic output," American Enterprise Institute, September 30, 2015.

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