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Employers

Employer Bulletin

Local Employers
Vol. 17, Local D
April 17, 2000

Bulletin Includes: 1999 WRS Annual Reconciliation Reports; Contribution Statement; Unfunded Actuarial Accrued Liability (UAAL); Computing Your Projected UAAL; and Survey


This Bulletin Includes:

  • The 1999 WRS Annual Reconciliation Reports
  • Contribution Statement
  • Unfunded Actuarial Accrued Liability (UAAL) Explanation
  • Computing Your Projected UAAL Amortization Schedule on
    the Internet
  • Survey Regarding Size of Employe Transaction Reports

This Bulletin includes final reports of transactions and contributions as part of the 1999 Annual Reconciliation process. The Department of Employe Trust Funds (ETF) has completed 1999 Annual Reconciliation. In addition to reconciliation materials, you also will find the following:

  • Your 1999 Employer Annual Contribution Statement
  • An explanation of Unfunded Actuarial Accrued Liability (UAAL), also known as Prior Service Liability
  • Computing your projected UAAL Amortization Schedule on the Internet, and
  • A survey regarding the feasibility of reporting transactions to ETF using an Employe Transaction Report (ET-2533) and Additional Contributions Report (ET-2535) that is 8 ½ x 11 (landscape)

It is essential that you review your transaction/contribution material carefully to ensure the accuracy of each employe's 1999 account balance. Please direct questions and any necessary corrections concerning your reconciliation reports to Rick Parpart, phone number (608) 267-2198 or e-mail rick.parpart@etf.state.wi.us.

Please forward this material as soon as possible to the individual in your office who is responsible for processing contribution reports. Thank you.

QUESTIONS AND ANSWERS RELATED TO UNFUNDED ACTUARIAL ACCRUED LIABILITY (UAAL)

What is Unfunded Actuarial Accrued Liability (UAAL), also known as Prior Service Liability?

Prior Service Liability is the cost of providing benefits for service credit earned:

  1. Prior to an employer joining the WRS, or
  2. For providing benefit improvements based on service credit earned prior to the effective date of certain major benefit legislative changes, several of which have been enacted into law by the Legislature/Governor over time.

Your current balance is the net of:

  1. The original amounts determined for your employes' service prior to the time you came under the retirement system, plus
  2. The liability for statutory benefit changes, plus
  3. All interest that has been assessed on the liability, less
  4. All payments made.

How do employers make payments on prior service liability?

Your monthly retirement contribution rate includes a small component for prior service liability (about one to two percent for most employers). Each month as you make retirement contributions, you are also making a payment for your prior service liability.

Your prior service contribution percentage rate is fixed at a level that is projected to be adequate to fully pay off the liability over the 40-year amortization period.

To minimize future interest charges, you have the option of paying off your liability faster. You can pay off the entire liability in a single payment, or simply make larger-than-required payments each year. If you are interested in paying off your liability early, ETF will develop a customized payment plan for you.

How is interest assessed on prior service liability?

Interest is assessed at the "assumed" long-term retirement investments earnings rate on the outstanding balance of the liability at the end of each calendar year. The assumed rate applied to each employer's prior service outstanding balance is 8.0 percent.

The interest that is charged on our prior service liability each year is greater than the payments we are making. How are we ever going to pay off our liability?

The prior service contribution rates are based on a level percentage of payroll over the entire 40-year amortization period. This means that the contribution rate will remain constant, but the actual contributions will increase each year as the salaries of covered employes increase.

During the early years, the salary base used to calculate contributions is low, and the contributions are less than the interest charges. Each year as covered wages increase, the contributions also grow until, in approximately the 20th year, the contributions and interest assessment will be equal. The contributions begin to reduce the liability until the end of 40 years, when the liability has been totally paid.

The actuarial assumption of 4.8% annual salary growth is used.

I heard that my UAAL balance was going to be reduced by a credit account provided for by 1999 Wisconsin Act 11. What's happening with that?

The 1999 Wisconsin Act 11 made various changes to the funding and benefits of the WRS. One provision of Act 11 provides a credit of $200 million to be allocated among WRS employers. Employers would not be required to make prior service (unfunded liability) payments until their individual credit account is exhausted. If the employer's prior service balance is paid in full before their credit is fully used, the credit would be applied to the employer required rate.

The Wisconsin Supreme Court has enjoined ETF from implementing any provisions of Act 11. If the Court determines that the employer credit accounts are legal, the Department will provide you with updated Monthly Retirement Remittance Reports and instructions on how the credits should be taken. We will update this information for you as it becomes available.

What happens if after 40 years we have not fully paid off our liability?

Under current law, any liabilities remaining at the end of the 40-year amortization period will continue to be payable. Payments will continue on a monthly basis until full payment has been made. However, it is probable that before the end of 40 years the Legislature will pass new laws that will have an impact on prior service liability, contribution rates, and the amortization period.

Many of the employes granted prior service when we joined the WRS have since terminated. Why do we still have a prior service liability?

Once you agree to fund prior service coverage for your employes, the granting of that service is irrevocable. The service remains available to those employes for calculating a retirement benefit, regardless of whether they continue in your employ, or move on to other employers.

Since the WRS remains liable to the participant for benefits based on having granted prior service, the employer who authorized the granting of prior service remains liable to the WRS for the cost of granting that service.

Can an employer pay off the balance of their prior service liability at any time?

Yes, an employer may pay off the entire balance of their prior service liability in a lump sum payment. ETF can also provide a customized amortization schedule so the employer can pay down the prior service liability balance faster to reduce interest charges.

Why are employers charged 8% interest on the unpaid balance when prevailing interest rates are lower?

The interest rate charged on the unpaid prior service balance is based on the assumed rate of investment return for the assets in the WRS. The WRS cannot charge an interest rate that is less than what it expected to earn had the entire prior service liability been paid off immediately. To do so would not only violate the fiduciary requirements of the trust, but would result in higher liabilities to the system as a whole.

If an employer pays off its prior service liability will it ever have another prior service liability assessed?

If the Legislature enacts new benefit changes that result in an unfunded prior service liability, that liability will be assessed to all employers, including those who have paid off their previous prior service liability.

NOTE: The Legislature's Retirement Research Committee may be reviewing the current method for funding prior service liability during the 1999-2001 Legislative session.

Please direct questions concerning your prior service liability to Nancy Kittleson at (608) 267-9034.

Compute Your Projected Unfunded Actuarial Accrued Liability (UAAL) Amortization Schedule on the Internet

The Department is pleased to provide this year a new, optional UAAL Calculator designed to assist you in projecting your own UAAL Amortization Schedule. Using the enclosed Employer Annual Contribution Statement for 1999, you can enter data into the Calculator located on ETF's web site at http://etf.wi.gov.

Select "Employer" from the Homepage. Choose the button labeled "Local Employer Projected Unfunded Actuarial Accrued Liability Calculator." A screen entitled "Projected Unfunded Actuarial Accrued Liability Amortization Schedule" will appear; you can then enter the following information:

  1. Employer Name and Employer Number (optional).
  2. Prior Service Rate = 1999 Prior Service Contribution Rate Percent by Employment Category as shown on your Employer Annual Contribution Statement. Enter only the Prior Service Rate corresponding to each category rather than the total category rate and contribution. The four Employment Categories are as follows:
    • General/Teacher (combined)
    • Elected
    • Protective with Social Security
    • Protective without Social Security
  3. 1999 Earnings Base = Category Earnings for each employment category as shown on your Employer Annual Contribution Statement. Remember to combine the General and Teacher category earnings into one 1999 salary base if you have amounts for both general and teachers.
  4. 12/31/1999 Unfunded Liability Balance.

Once all information has been entered for each category, press the Calculate button. This will project your prior service payments and interest using the current Actuarial Assumptions of the Wisconsin Retirement System for the 8% interest rate and for the salary increase rate, currently set at 4.80 percent. Using these assumptions the calculator produces a schedule that projects your payments and interest through the year 2029.

Please direct questions concerning your prior service liability or the Local Employer Projected Unfunded Actuarial Accrued Liability Calculator to Nancy Kittleson at (608) 267-9034 or e-mail nancy.kittleson@etf.state.wi.us.

Employe Transaction Report Survey

ETF is considering the use of standard size Employe Transaction Report (ET-2533) and Additional Contributions Report (ET-2535) forms. These reports currently are oversized landscape, and we're proposing to change them to 8 ½ x 11 landscape. However, we would like your input on this potential change and how it would affect you. We realize that some WRS employers may have expensive setups that correspond to the current oversized version of the Employe Transaction Report and the Additional Contributions Report. We want to know whether you would be in favor of the proposed change.

Therefore, please complete and return the attached survey regarding this issue. The deadline is June 30, 2000. You may send the survey via fax (608) 266-5801, or mail it to the Department of Employe Trust Funds, PO Box 7931, Madison, WI 53707-7931. For more information about this survey, contact Dale Ferron at (608) 266-0728.

 

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