Wisconsin public pensions

National Taxpayers Union
State budgets Public employee salaries Public pensions States with spending online Collaborative transparency projects Model transparency legislation State Budget Solutions
Action center
Sign up for e-updates Take action

Wisconsin public pensions include the state-run system the Wisconsin Retirement System, which is the 9th largest public pension fund in the US and the 28th largest public or private pension fund in the world.^[1]

Wisconsin has 105,621 total public employees as of 2010.^[2] In Fiscal Year 2010, the state has a total of 415,646 active and inactive pension fund members, with 150,671 receiving periodic benefit payments. ^[3]

According to the United States Census Bureau, the state has 2 locally-administered pension systems.^[4]

Pension reforms

Wisconsin state workers started paying more for their health care and pension benefits in late August, 2011 ^[5] State employees will pay 5.8% of their salaries. An amendment to the budget approved by the Assembly requires both state and local government employers to permit employees to make those payments on a pre-tax basis, lowering the employees' income taxes and tax revenues for the state.^[6]

The state’s highest court affirmed June 14 that Republican Gov. Scott Walker’s union rights law shall take effect. The law limits public employee collective bargaining to salary increases only and requires that public sector employees pay for 5.8% towards their pension and 12% of the cost of their insurance premium. Prior to the implementation of Act 10, most public sector employees paid nothing towards either. The bill became a key part of Gov. Walker’s plan to gain control of state finances without raising taxes. ^[7] Gov. Walker rewrote a section of the budget to now require public employees to work five years before qualifying for pension.^[8]

To help with pension costs, retired public employees in Wisconsin could see their pension checks cut as much as 7 percent, effective in May 2012. The Core Fund's gains and losses are smoothed over five years, so even though its returns have been positive for three years, the outcome is still marred by the $21 billion decrease in the Core Fund in 2008's financial market meltdown. ^[9]

Many people in the Wisconsin Retirement System have seen their pensions sliced by 11 percent since 2008. For tens of thousands of pension recipients, pension payments will remain frozen at levels that in many cases fall far short of the rate of inflation.^[10]

Leaving Plans Alone

Following the release of an administrative report, Gov. Scott Walker has no plans to allow a 401(k)-style retirement option to compete against the existing pension system serving hundreds of thousands of public employees and retirees. Moving to an optional defined contribution plan would have the advantage of portability if workers moved to jobs in the private sector and would give them more say over how their money is invested. However, the report said defined benefit plans are better for the great majority of workers because assets in retirement funds are pooled and professionally managed. The study found a defined contribution plan would require higher contributions from either employees, employers or both to achieve the same benefit levels as the existing system. It also would likely cost more to administer, the report said. Also, as workers opted into the defined contribution plan, participation would necessarily wane in the defined benefit plan. That would hurt the defined benefit fund's overall performance by making it smaller with fewer economies of scale, the report says. ^[11]

Court Upholds Act 10 A federal appeals court upheld Act 10. The 7th Circuit U.S. Court of Appeals struck down key provisions of a separate federal court’s ruling, writing, “The district court invalidated Act 10′s recertification and payroll deduction provisions, but upheld the statute’s limitation on collective bargaining. We now uphold Act 10 in its entirety.” ^[12]

Union recertification

By Sept. 21 the major state employee unions covering tens of thousands of workers will have effectively lost their official status. Top leaders for those unions say they won't seek to meet the high hurdle for keeping that current status as laid out in Gov. Scott Walker's union bargaining law. In March 2011, Walker signed legislation ending all union bargaining for public employees except for limited negotiations over wages. Union employees can't bargain for raises larger than the rate of inflation unless approved by voters in a referendum. The legislation requires unions go through annual recertification votes to keep their official status. Unions can still exist without that official status, but government employers, such as schools and the state, don't have to recognize them or bargain with them over anything. To win the recertification election, unions must get 51 percent of the vote of all the members of their bargaining unit, not just the ones who take the time to cast ballots - a much higher bar than state elected officials have to clear to win their offices. ^[13]

Viral e-mail

An email being shared across Wisconsin by unions and their supporters claims if Walker wins the anticipated recall election, he will push through legislation that will abolish the state retirement system and convert everyone to a 401(k) plan. According to WISC-TV there isn't legislation planned to do this, but a study of the Wisconsin Retirement System is being conducted, which is looking at creating a defined contribution system, or 401(k) plan, as an option for state employees, and giving employees the option of not contributing to their pension. The study will be submitted to the Legislature's budget writing committee June 30. ^[14]

The study doesn't outline what any possible defined contribution would be by the state, so it is unknown if or how much it could reduce pensions. Secondly, state law says any money already contributed by an employee can't be touched, so this wouldn't directly affect retirees.^[14]

Pension Cuts

System actuaries project possible cuts in payments of between 9 percent and 15 percent for thousands of retirees — if fund investments maintain their current healthy pace for the rest of the year. An expected fifth straight year of benefit reductions is the result of investment losses suffered in the 2008 financial downturn. In 2008 the fund suffered a 26 percent loss. ^[15]

If 2012 investment income — currently running at about 9 percent — doesn’t fall off drastically before year’s end, then in 2013 an average benefit cut of 11 percent will be absorbed by roughly 100,000 retirees who stopped working in 2004 or earlier. The 70,000 who retired after 2004 are already at their floors, or the guaranteed minimum benefit level. ^[16]

Teachers' pensions

On April 6, 2012 Milwaukee Public Schools announced it intends to end a 30-year-old second pension for teachers by freezing payments to the fund and denying participation to any newly hired or rehired teachers. ^[17]

A study by the Education Action Group revealed the average Milwaukee Public Schools teacher was absent from the classroom over 9 percent of the time during the 2010-11 school year. According to the report the district’s 5,241 teachers took 92,691 days off last year – in the form of sick days, personal leave, “convention” leave and “incentive” leave – which resulted in a $11.9 million expense for substitute teachers. ^[18]

According to the EAG report the Milwaukee Public Schools' contract with teachers contains raises that cost taxpayers approximately $15 million annually. The report also states MTEA members did not contribute anything to their health insurance plans or their retirement pensions, resulting in bills to taxpayers of $128 million and $56 million respectively.^[18]

Municipal pensions

Local governments in Wisconsin threatened to sharply increase public safety workers' health insurance costs if those workers do not contribute more to their pensions. The Wisconsin Professional Police Association told the Associated Press local governments are taking advantage of a state budget clause that allows municipalities to dictate the form of public safety workers' health insurance plans. The WPPA contends local leaders are using their new power to set up exorbitant deductibles for police and firefighters if they don't agree to contribute to their retirements. Municipal leaders say they're simply using a tool the Legislature provided them to manage deep cuts in state aid and defuse tensions between police and firefighters and other public employees. ^[19]

Local police and firefighter pensions were exempt from higher pension and health care costs under Act 10. City leaders in Wausau anticipate losing about $2 million in state aid during the next two fiscal years. They did away with their old health care plan that reimbursed police officers for a portion of their deductibles — increasing a single officer's exposure from $550 to $2,750 and an officer with a family's exposure from $1,100 to $5,500. If the officers agree to pay into their pensions, however, that would generate enough money to fund their deductible reimbursements. ^[20]

In Greenfield, police and firefighters agreed to pay 12.6 percent of their health care costs and 5.9 percent of their earnings toward their pensions, like the rest of the city's employees, rather than face a $10,000 family deductible. Mayor Mike Neitzke said he had to make up a $760,000 reduction in state aid over the next two fiscal years. ^[20]

Contribution rates

Most employees contribute approximately 5% of their earnings.^[21] The State pays another 5-10%, depending upon the employee's occupational status, toward the non-vested employer-required contribution.^[21]

Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States,^[22] the American Enterprise Institute^[23] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[24]

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

This data is based on projected data from 2008 census data.^[25] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Research conducted by State Budget Solutions shows the extent to which the state has funded or underfunded its Annual Required Contribution:^[26]

Investments

Preliminary 2012 estimates released in January 2013 showed that the State of Wisconsin Investment Board's $79 billion core fund achieved a 13.6 percent annual investment return. It was the fourth straight year of positive returns since 2008. The Core Fund's 10 year annualized return was 8.4 percent.^[27]

The State of Wisconsin Investment Board, which manages monies for some 570,000 current and retired public employees, gradually increased its position in alternatives to 12 percent of total assets. Meanwhile, the Wisconsin Retirement System’s annualized return of 5.2 percent in its Core Fund over the five-year period measured in the New York Times study is above the median return of 4.9 percent for other public pension funds analyzed. Wisconsin’s expense ratio of .37 percent is also on the low side, according to an independent analysis. ^[28]

Rate of return

Wisconsin presumes a 7.20% return rate on its pension investments.^[22]

Deferred compensation

The Wisconsin Deferred Compensation Program, which is a supplemental retirement savings program authorized under Section 457 of the Internal Revenue Code,^[29] is an option for all state employees.^[30] The program allows eligible employees an opportunity to save pre-tax earnings to supplement retirement income. Under Sec. 457, participants are allowed to defer up to the lesser of 100% of gross income or $16,500 in 2009.^[21]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 2 locally-administered pension systems.^[4]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

The Wisconsin Department of Employee Trust Funds publishes annual financial reports, actuarial reports and a comparative study of major public pension plans on the website. ^[31]

Names of pension recipients and amounts paid to each individual recipient are not posted on the ETF website.

Fund performance data

Pension investment information is not available as a separate publication on the website, but the information is published in the annual financial reports, which can be found on the site. ^[32]

Rate of return

The assumed rate of return is posted on the site along with historical returns. ^[33] The information is also published in the annual financial reports, which can be found on the site. ^[34]

Unfunded liabilities

Unfunded liabilities are not published on the site, but the information is published in the annual financial reports, which can be found on the site. ^[35]

Oversight

Despite the political fracas surrounding public pensions in Wisconsin that led to an attempt to recall Gov. Scott Walker, an Internet search does not find evidence of pay to play scandals in the Wisconsin retirement system. In 2012 Wisconsin has been singled out by the Pew Center on the States as having the strongest state retirement fund in the nation. ^[36]

The 13-member Employee Trust Fund Board approves benefits, contribution rates and actuarial assumptions, authorizes all annuities except for disability, oversees ETF administrative rules and oversees benefit programs, except for group insurance and deferred compensation. Each public pension entity also has its own board, but they in turn appoint members to the ETF board for representation.

Actuarial reports are handled by outside firms.

See also

• Public pensions
• Wisconsin state budget
• Ten cities facing the worst of the pension crisis
• Wisconsin state government salary

External links

• Wisconsin Retirement System
• Wisconsin State Pension Fund Management - State Integrity Investigation

References

	v • d • e State of Wisconsin Madison (capital)
Transparency	Open Records Law | Transparency Checklist | Government corruption reports | Transparency Legislation | Open Records procedures | Transparency Advocates | Transparency blogs | State budget | Taxpayer-funded lobbying associations |
Divisions	State | List of Counties | List of Cities | List of Towns | List of School Districts | Evaluation of county websites | Evaluation of city websites | Evaluation of township websites | Evaluation of school district websites |
Government	Wisconsin State Constitution | Executive | State Assembly | Senate |
Judiciary	Wisconsin Supreme Court | Courts of Appeal | Circuit Courts | Municipal Courts | Wisconsin Commission Appointed Judicial Method Proposal | Wisconsin Judicial Commission | Wisconsin Supreme Court elections | Judicial news | Judicial activist organizations |
Ballot Measures	Ballot measures | School bond referendum | List of local ballot measures | Procedures for qualifying an initiative | Amending the constitution | History of direct democracy | Campaign finance requirements | Sunshine on elections |