WRS News Online

Message From Leadership

Essential Elements of a Successful Pension System
by Robert Conlin, ETF Secretary

As 2015 begins, I am pleased to report that your Wisconsin Retirement System remains very strong, stable, and able to play a key role in helping to meet your financial needs in retirement.

Due to SWIB’s investment performance over the last several years, and the unique, gain/loss-sharing benefit structure of the WRS, overall employee and employer contribution rates will be lower this year, active employee accounts will be credited with a healthy effective rate, and retirees will see another solid increase in their annuities this spring.

But the WRS didn’t become one of the top state pension systems in the country by accident. Far from it. The policymakers who launched the WRS set out to create a retirement system that could withstand the test of time. They sought to create a system to help protect public employees and their families against the financial hardships of old age, disability and death, while also helping to attract and retain quality employees for state and local governments and school districts throughout Wisconsin.

Two key elements underpin the success of the WRS: the unique gain/loss-sharing benefit structure in which benefits are affected by investment performance; and funding discipline that ensures the cost of the benefits being earned is appropriately funded. Add to that mix the investment flexibility that allows SWIB to invest prudently to meet the needs of the system, and you have a recipe for a successful public pension system. This newsletter routinely discusses these key ingredients.

However, another key element exists that doesn’t get the attention it properly deserves: The WRS is fortunate to have an informed and engaged membership that cares deeply about the long-term health of the system. Almost 600,000 of you from all corners of the state can claim an interest in the well-being of the WRS. That number grows significantly when you include your spouses, partners and family members who also have a vested interest.

You watch how ETF administers the benefits and how SWIB invests the assets of the WRS. You stay informed about the system and you voice concerns when necessary. You are actively engaged in the governance of the system by running for board seats or voting in board elections. In short, you support the WRS in a variety of ways.

When I talk with groups of active employees and retirees, it’s clear to me that you don’t take the success of our system for granted. Your engagement, I believe, makes a really good WRS great. Thank you for continuing to do your part and for your trust in us.

Looking Back at a Successful 2014 and Forward to 2015
by Michael Williamson, SWIB Executive Director

As I talk with members across the state, the question I am most asked this time of year is, “How did we do?” Those of us in the Wisconsin Retirement System are interested in knowing how the State of Wisconsin Investment Board did in meeting its primary goal of making money. Of course, that question is almost always followed by, “What does the coming year look like?” I would like to address both of those questions in this column.

How did we do?
When I am asked this question, I am reminded of the importance of the job we do at SWIB in managing over $96 billion in retirement funds. As many of you know, almost 80% of the income of the WRS comes from investment earnings.

I am pleased to report that both the Core Fund and the Variable Fund again this year finished with positive returns. The Core Fund’s preliminary return as of December 31, 2014, was 5.7%. The Core Fund has had a positive return in each year since the market downturn in 2008. The Variable Fund had a preliminary return as of December 31, 2014, of 7.3%. The Variable Fund has had positive returns in five of the last six years.

More important, I am pleased that investment experience will result in decreased contribution rates for active employees and their employers in the coming year and are projected to result in positive annuity adjustments for retirees for the second consecutive year. While other pension systems are struggling with underfunding, the WRS continues to meet its obligations to participants and remains among the top funded systems in the country.

What does the coming year look like?
SWIB continues to make money for the trust funds while helping to protect against market downturns that can be caused by social, political or even natural causes around the world. During the past year, we have seen crises in Ukraine and Gaza and even Ebola developments lead to market disruptions. Other examples include Japan, the world’s third-biggest economy, which saw inflation reach 24-year highs. China, which data indicate is now the world’s biggest economy after passing the United States, is struggling with financial and credit concerns that have become critical, when looking at risks to the global economy. Western Europe continues to struggle with high unemployment and a stalled economy. Closer to home, the news was a little more positive with the U.S. economy continuing to expand and consumer spending increasing as gasoline prices fell toward the end of the year. The nation’s labor market strengthened, although wage growth remained slow.

These examples show that in today’s market the job of making money is not an easy one. However, it is one we take seriously and are more than willing to accept because we know the results of our work have a direct impact on the retirees, employees and employers who are part of the WRS.

As we look forward to 2015, we will need to continue to monitor many of the issues we watched closely in 2014 to determine what affect a weakening global economy and a strengthening U.S. economy will have on our investments.

To balance the economic forces at home and internally, we continue to diversify our investments. While SWIB staff monitors these issues daily and adjusts our investment strategies, participants in the WRS can be assured that we are working to protect the system and its members by implementing new investment strategies when appropriate and diversification of the funds. There are no guarantees in the investment world, but we will continue to work hard in the coming year with hopes of celebrating a positive 2015.