Wisconsin State Journal Series
Retirees fear more changes to public pension system, Part 1
What would potential changes to pension system mean for current and future retirees? Part 2
Unintended consequence: Collective bargaining law may increase state pension costs by $87.5M
PEW Pension Update - States Fact Sheets
STATE OF WISCONSIN
Department of Employee Trust Funds
Robert J. Conlin
March 2, 2012
FOR IMMEDIATE RELEASE
Shawn Smith Communications Director (608) 266-3641
Rob Marchant Deputy Secretary (608) 266-9854
ETF Announces WRS Annuity Adjustments Core Annuity Adjustment -7.0% Variable Annuity Adjustment -7.0%
Madison, (WI) -- Department of Employee Trust Funds (ETF) Secretary Bob Conlin today announced the 2011 Wisconsin Retirement System (WRS) annuity adjustments. The rates were recommended by the Department’s independent consulting actuary and approved by the ETF Board chair and Secretary Conlin. WRS retirees will see reductions in both their Core and Variable annuities beginning May 1. This marks the fourth year in a row ETF has had to reduce Core annuities, primarily due to the effects of the financial market meltdown in 2008. Although WRS assets have experienced three consecutive years of positive returns since 2008, those returns have not been enough to offset 2008’s losses. Core Fund gains and losses are recognized, or smoothed, over a five-year period. Unlike many other retirement systems, the WRS, by law, does not guarantee post-retirement cost of living adjustments. Annual increases are solely dependent on WRS trust fund investment performance. When investment performance results in a shortfall in the annuity reserve, previously-granted increases must be recouped.
“The unique ‘shared risk’ structure of the WRS requires that the system adjust to compensate for good and bad years,” said Conlin. “While taking back a previously- granted increase is not a hoped-for outcome, doing so helps keep the system sustainable.” This year’s reduction, when added to previous annuity reductions implemented since the 2008 downturn, means a total of $3.2 billion will have been recouped from retirees. The maximum 2011 Core annuity adjustment is -7.0%. However, not all retirees will see a 7.0% reduction.
The amount of the reduction for an individual retiree depends on the extent to which the annuity reflects previously-granted Core annuity increases. By law, the effect of a shortfall in the annuity reserve – $1.68 billion this year – is to be made up by repealing previous Core annuity increases. As a result, in addition to the recognition of prior investment losses, the size of this year’s negative Core annuity adjustment can also be attributed to the decreasing segment of retirees whose Core annuities can be reduced. Many annuities have been reduced to their original, guaranteed amounts (their “floor”), as previously-distributed increases have been taken back. This has left a smaller pool of annuities from which further reductions may be taken. If every WRS retiree would have been eligible for a Core annuity reduction this year, the adjustment for each retiree would have been about -4.0%. Conlin said the Department’s projections for this year’s Core Annuity adjustment, which was prepared during 2011 and which projected a 4.0% to 4.5% reduction, was based on a model that focused more on the effect of investment losses and did not fully account for the growing number of retirees who will reach their floor because of annuity reductions in previous years. Retirees who participate in the optional Variable Fund, in which investment gains and losses are fully recognized each year (not smoothed), will see a -7.0% adjustment in the Variable portion of their annuities. Annuities paid from the Variable Fund can be reduced below their original amounts. ETF also announced the 2011 effective interest rates for active employees. The Core effective rate is 1.5% and the Variable effective rate is -3.0%. Effective rates are applied to the retirement accounts of the system’s 260,000 active employees and eligible inactive members.
The WRS has approximately 167,000 retirees.
Approximately 45,656 retirees will not have their Core annuities reduced at all; another 24,690 will have less than a .07% reduction because they will reach their “floor”.
The effective rates and annuity adjustments are based on investment performance earned by the State of Wisconsin Investment Board, in addition to other actuarial factors. SWIB recently announced 2011 investment returns of 1.4% for the Core Fund and -3.0% for the Variable Fund.
Core Fund: The average annual Core annuity adjustment rates (compounded) are as follows:
Annuity reductions were approved in the previous three years, reducing future payments to WRS retirees by the following amounts:
* 2010 $350.1 million
* 2009 $416.9 million
* 2008 $753.4 million
The Core Fund is the larger of the two WRS trust funds. It is a balanced fund of diversified holdings in domestic and international stocks, bonds and real estate.
Core Fund investment returns (decreases as well as increases) are spread out (smoothed) over a period of five years. Thus, this year’s Core annuity adjustment rate calculation included a portion of 2008’s $21 billion Core Fund decrease.
All WRS retirees receive at least half of their pension in the form of a Core annuity.
The average annual Variable annuity adjustment rates (compounded) are as follows:
10 year -2.11
5 year -6.07
From: Smith, Shawn
Date: February 28, 2012 11:22 AM
To: ETF LEADERSHIP TEAM
I have some news to share. It is with regret that I announce that I am leaving ETF. My last day will be March 9th.
I have been offered a promotion at the Department of Human Services working with Medicaid and Foodshare. For those of you who know my background, you may recall that prior to coming to ETF I spent the better part of my career working with economic support and income maintenance programs in several agencies and as a consultant in several states. While my divergence into retirement systems has been an altogether enjoyable one, my hearts true passion and calling lies in building better systems of support and sustenance for low income families.
Specifically, I will be directing enrollment policy and systems in the Division of Health Care Access and Accountability as a Bureau Director.
I do leave with trepidation and a sense of things still left undone, unfortunately. For that I apologize for horrendous timing and wish you well as a team to move forward on the ambitious plans before you.
I learned long ago that you never say “goodbye” in state service so I will spare you all (and myself) that awkwardness. I hope to retain your friendship and plan to bother you plenty in the time ahead.
What a fantastic team and mission we enjoy here. It has been my honor and privilege to be a small part of it for just shy of three years.
Feel free to pass this news along to staff, my team has been notified.
Date: February 13, 2012 1:57:15 PM CST
Subject: Reply from Rep. Taylor on WRS
Thank you for contacting me in regards to your support for Wisconsin’s Retirement System (WRS). I share your support for our current system and will fight any attempts by the Governor or the Legislature to change our current pension plan such as moving it from a defined benefit plan to a defined contribution plan. Also, I am opposed to allowing the University Of Wisconsin Board Of Regents to set up an alternative retirement system for new UW employees.
The WRS covers more than 572,000 people. Allowing employees to opt-out of participation in the state retirement system could severely undermine the long-term sustainability of the retirement system and put the pension of hundreds of thousands of state and local workers in jeopardy.
Reports from nationally-recognized centers such as the Pew Center for the States and the National Association of State Retirement Administrators give Wisconsin top marks on the management of the WRS and rank it at or near the top of plans nationwide. Wisconsin has consistently contributed 100 percent of the amount of money that actuaries calculate is needed each year and 100 percent of Wisconsin’s retirement liabilities can be funded directly through existing assets. Wisconsin is one of only four states nationwide that is 100 percent funded. Clearly, Wisconsin is a leader in managing and operating a successful retirement system.
Once again, thank you for contacting me and be assured that I will vigorously oppose attempts to alter the WRS.
Rep. Chris Taylor 48th District
John (Jack) Graham Stoddard died on February 8, 2012 after a
brief illness. Jack was born on November 20, 1928 in Washington, Indiana and grew up in Pontiac, Michigan. He earned his BA in English and MA in Criminal Sociology from Notre Dame University after serving our country in the Korean war as a sergeant in the US Army Combat Engineering Battalion.
He met Corinne Davies, his wife of 56 years, on a blind date. They eventually settled in Madison, Wisconsin in 1964 where they raised their five children. Jack worked for the State of Wisconsin Division of Corrections, retiring in 1990 after 31 years of service, and earned the Governor’s Special Award.
He continued to serve Wisconsin as a board member of the Wisconsin Coalition of Annuitants representing Wisconsin Retired Corrections Personnel, championing responsible management of the State retirement funds.
After he retired, Jack and Corinne traveled the United States and the world. Jack enjoyed discovering new cultures and meeting new people; his favorite trips were to China, Poland, and the United Kingdom.
Jack was witty, loquacious, and keenly insightful - an astute commentator on world and local politics. He was a man of words –who loved playing word games and was seldom bested in these competitions. Jack was well-loved by his family and friends who will miss his commentaries and his kind support. He leaves a legacy of wisdom and witticisms, especially cherished by his grandchildren who carry ‘Poppa’s sayings’ forward in their generation.
He is survived by his wife Corinne; his five children – Mary Clare Stoddard of Albuquerque, NM, Catherine Hubbard of Middleton, WI; Ellen Stoddard-Keyes of Bailey, CO; Martin Stoddard of DeForest, WI; and Anne-Marie Stoddard-Wheelock of Madison, WI; nine living, responsible grandchildren, his brother Don Stoddard of Bradenton, FL and his sister Anne Wurst of Bedford, TX. Jack was preceded in death by his granddaughter, Emily Maureen Ellen Keyes.
Donations in his honor may be made to:
Catholic Multicultural Center
United Wisconsin to Recall Walker
The “I Love U Guys” Foundation
Dear Senator Grothman:
Here is a letter from the Wisconsin Retired Educators’ Association (WREA) outlining our concerns about the appointment of John Petersen III to the SWIB Board of Trustees. We have also attached documents that detail our reservations. I apologize for not being able to personally deliver this information; however, with the December 29 announcement of the appointments followed by the hearing scheduled for tomorrow (January 4, 2012) at 2 p.m., time does not allow that.
As noted, this is also being sent to the members of the Joint Survey Committee on Retirement Systems (WRS). Thank you for your consideration.
January 3, 2012
Committee on Financial Institutions and Rural Issues
Senator Grothman, Chair and Senator Lasee, Vice-Chair
Senator Schultz, Senator Lassa and Senator Vinehout
RE: Potential Appointments to the State of Wisconsin Investment Board (SWIB)
Dear Senator Grothman and Members of the Committee:
We are writing today on behalf of the Wisconsin Retired Educators’ Association (WREA) which represents over 15,000 members statewide. Throughout our 60-year history, WREA has monitored the Wisconsin Retirement System (WRS) and the activities of the State of Wisconsin Investment Board (SWIB) and the Department of Employee Trust Funds (ETF). Our signature goal is to protect the long term integrity of the WRS.
Because of our commitment to the WRS, we are writing to express reservations about the appointment of John Petersen III as a Trustee to the State of Wisconsin Investment Board (SWIB). In addition to a signed copy of this letter, attached please find the following documents:
• An excerpt from Wisconsin Statutes 15.76 (2) related to Investment Board appointments
• The November 6, 2001 cover letter of the SWIB November 2001 Audit Report written by
Janice Mueller, State Auditor
• The Audit Bureau Summary of the November 2001 SWIB Audit Report
• The November 26, 2001 article from Pensions & Investments entitled Appearance of
Conflict: Wisconsin audit committee questions state board’s handling of investment
These attached documents provide the details behind WREA concerns:
1. Wisconsin Statutes 15.76 (2) section (2). . states “any person having a financial interest in or whose employer is primarily a dealer or broker in securities or mortgage or real estate investments is not eligible for appointment. . . .”
From The Inland Investment Company website we read: Business Categories
a. Investment Securities in Madison, WI
b. Operators Of Commercial Buildings & Securities Investment
c. Investment Banking & Securities Dealing
The question is raised: Is Mr. Petersen, as President of Inland Investment Company, eligible for a SWIB appointment?
1. The other three attached documents deal with the concern raised by the Audit Bureau in the 2001 SWIB audit as to potential conflicts of interest on the part of Mr. Petersen as Chair of the SWIB Board of Trustees.
a. One example outlines a controversial investment of the Opportunity Portfolio involving SWIB’s purchase of $8.3 million of distressed bonds from Heartland Advisors Inc., two weeks before Heartland repriced its bonds at a significantly lower rate. Concerns were raised about the relationship between Mr. Petersen who was the chair of the SWIB Board of Trustees and also a member of the Heartland Board at the same time.
b. Another example is an Opportunity Portfolio strategic partnership with an investment management company known as iRegent, to form a holding company known as Korea OnLine Limited (KOL). SWIB invested $110 million in KOL. At the time, three SWIB trustees and two former trustees also owned stock in iRegent.
Although one of the trustees recused himself from the SWIB vote to invest in KOL, two did not, including Mr. Petersen. According to the audit report, “Whether this instance represents a conflict of interest under the State Ethics Code is debatable. However, the vote, at a minimum, presents an appearance of a conflict of interest that the trustees should have taken steps to avoid.”
This issue was picked up by Pensions & Investments.
We hope you will carefully consider our concerns regarding Mr. Petersen’s appointment to the SWIB Board of Trustees. We would have preferred to personally deliver this information to you; however, time would not allow that. The appointments were announced on December 29, just before a holiday weekend, and the hearing was scheduled five days later. In closing, the Wisconsin Retirement System (WRS) has an exemplary reputation. It is of critical importance that those who represent the WRS and have any oversight of the system be above ethical reproach. We would add that the SWIB appointments should also be considered by the Joint Survey Committee on Retirement Systems (JSCRS) which also has the responsibility to oversee pension-related issues and is accountable to the Legislature and WRS participants. Sincerely,
WREA Executive Director
WREA Legislative Chair
cc: Members of the Joint Survey Committee on Retirement Systems, chaired by Senator Kedzie and Representative Kramer
RESPONSE FROM KATHLEEN MARSH ON STARTING HER PETITION
December 31, 2011
By Kathleen Marsh
The WRS Petition: Why Did I Start It?
With almost 20,000 people already signing my petition, I am being asked who I am and why I am doing this. Yes, I am a proud Progressive, but I am also President of my American Legion Auxiliary Unit, so don’t label me. NO ONE put me up to this; I did it on my own. Please read this (sorry so long!) to understand my motivation in starting this petition.
A December 9, 2011, letter from David Stella, Secretary of the Employee Trust Funds (ETF), reminded me that Biennial State Budget (Act 32) appointed a committee to “study” the WRS. The Study Committee will be composed of representatives from (ETF), the Department of Administration (DOA), and the Office of State Employment Relations (OSER) and must submit a report by no later than June 30, 2012. The study must specifically address establishing a defined contribution plan as an option for participating employees; permitting employees to not make required contributions; and limiting retirement benefits for those employees to a money purchase annuity. For those already retired, Wisconsin law currently provides that benefits already earned cannot be changed. No legislation has been introduced yet, and no decision has been made to implement either of the features mentioned in #2. Any such changes would have to be approved by the Legislature and signed into law by the Governor, and they could only apply to the accrual of future benefits.
So I asked myself: Why is Scott Walker doing this? Why is he is messing with the WRS? First rule of politics: follow the money! I checked out the list of his top 40 campaign contributors. Many BIG donors are from the financial and investment sector. Why would they give Walker tens of thousands of dollars? What do they want? Answer: there are HUGE commissions to be made if WRS is privatized. Since I am already retired, why should I care? The last answer was easy: even if changing from a defined benefit to a defined contribution does not affect those already retired, I believe we are duty-bound to protect this extraordinary pension system for today’s public workers who are currently helping to fund our retirements with their contributions.
As we learned with Act 10, laws concerning public employees and their benefits can be easily changed by the Walker administration. To trust this governor is to make a fool’s mistake twice. About a year ago I received an email stating that Scott Walker would end collective bargaining for all public employees except firefighters and police. I was aghast and immediately called my Assembly Representative Jeff Mursau (R Crivitz). His aide told me not to worry. Such a thing could NEVER happen, and if the new governor ever proposed such a thing, it would NOT pass the Legislature. Sure. Add to this all the other mistruths coming from Scott Walker, well, forgive me for turning into Wisconsin’s biggest skeptic.
Okay, so if you are still with me, let’s start connecting dots. Why “study” a superb pension system, which is fully funded, and a model for the nation? To give public employees better benefits? Yeah, right. Limited to cost-of-living increases only, current workers are facing frozen salaries, well, almost forever. If younger employees are allowed to defund their retirements or fund them with a 401K-like system, many will forego contributions altogether. They will either say they need the money now, or they don’t believe they will EVER get to retirement. Those who do fund their pensions will contribute less than the maximum, which will then mean fewer matching funds from employers. These now “private investors” will be courted by fee-motivated investment “counselors” armed with glossy brochures and rosy forecasts of much bigger returns than WRS can provide. I was young once. I am fiscally very conservative, but I probably would have skipped the contributions in my lean 20s and fallen for the sales pitch in my 30s and 40s. And at retirement age, I would have been very, very sorry!
So, human nature being what it is, much less money will be flowing into ETF. The beauty of the current system is that it is mandatory participation, which keeps it fully funded and healthy. Even a school cook making $8 an hour can anticipate a small but secure retirement check. By forcing her to pay her half, Walker is already weakening support for the system. If the law is changed, she, and tens of thousands of others, could just skip the contribution or invest their money elsewhere. The result will be a steady drain of new money from ETF. This will put incredible pressure on them to keep up with current benefits, especially since so many people are retiring early and so many baby boomers will soon follow.
With many economists predicting a decade or more of stagnant growth, ETF could well slide into negative territory, forcing taxpayers to fill the gap. That would not only bring howls of outrage from those who already begrudge us our pensions, but each retiree’s benefits could revert to what they were the day he/she retired. This would be catastrophic for elderly employees who retired a long time ago under very modest benefit levels. Eventually, the WRS would become so controversial, it would be easy to replace it altogether with a much less secure private 401K-type system where investor fees would likely double and returns be more volatile.
Some might say this is a doomsday scenario. But I repeat, why does Walker want to FIX something that isn’t BROKEN? We must speak out. Study committees always have an agenda. With so much Walker influence on the commission, we need to be vigilant and proactive, demanding to know who exactly is a member of this group? Where and when do they meet? What “facts” will they solicit as they make their decisions? We deserve to know. Our future depends on it.
Several have requested to sign the petition composed by Kathleen Marsh, below is the petition link.
Scott Walker wants to radically alter the public employee pension system in Wisconsin (WRS). He will turn a 97% funded defined benefit system into a high risk defined contribution system, enabling his investment house buddies to cash in big while recipients lose the safety and security of one of the best retirement funds in the country!
"Scott Walker: Keep your hands off the Wisconsin Retirement System!"
Will you sign this petition? Click here: