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Pensioners provide income to small towns: NIRS

Jul 12, 2011, 3:29 p.m.

WASHINGTON (Reuters) - Struggling towns and small communities in the United States are finding economic security in their ranks of pensioners, a retirement expert told a Senate committee on Tuesday.

"Pension payments are particularly vital to small communities and economies across the country where there is a lack of diverse local industries or where other steady sources of income may not be readily found," said Diane Oakley, executive director of the National Institute of Retirement Security, at a hearing about the state of pensions.

In recent years the private sector has moved toward retirement plans that combine employer and employee investments in individual accounts.

The public sector has stuck to pension plans that send retirees a defined amount each month generated by employee and taxpayer contributions as well as investment earnings.

Preliminary data collected by Oakley's group suggest that in 2009 public pensions and the remaining private sector plans supported more than $121.5 billion in annual federal, state and local tax revenue. In 2006, state and local pension benefits alone brought in more than $57 billion, she said.

Because pension payments are fixed, retirees who receive them do not tend to change their spending habits in the face of financial crises or stock market instability, Oakley said.

She pointed to rural Costilla County in Colorado. In 2009, $2.1 million in pension benefit payments made up 35 percent of the earned income of the county, she said.

Her group estimates that each dollar of the $151.6 billion sent to public pensioners in 2006 supported $2.36 in economic activity.

Public employee benefits have been under attack recently, with states such as Wisconsin working to reduce the compensation for workers. A few smaller cities, such as Central Falls, Rhode Island, are short on their promises to retirees and are having to make dramatic cuts in order to cover benefit amounts. Central Falls recently closed its public library in its hunt for funds.

(Reporting by Lisa Lambert; Editing by James Dalgleish)