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Department of Employee Trust Funds
August 6, 2013

ETF Shares Strengths
of Wisconsin’s Pension System

The following editorial column was written by Department of Employee Trust Funds Secretary Robert J. Conlin and submitted to the Milwaukee Journal Sentinel for publication on August 1, 2013.


Wisconsin Pension System Solid, Should be Model for Others

By Robert J. Conlin
August 1, 2013

In a recent "The Right Balance" blog post at JSOnline's Purple Wisconsin, Jay Miller makes note of the underfunded pension issues in Illinois and advises Wisconsinites to learn from the mistakes of others rather than committing them ourselves. Not only is that sound advice, it's something Wisconsin has been doing for years and must continue to do. In fact, policymakers from states and cities with chronic pension underfunding issues may want to look to Wisconsin as they consider reforming their pension systems.

The Wisconsin Retirement System is a solidly funded public pension system that covers more than 570,000 current, former and retired public workers from around the state. The fact that Wisconsin is not facing a pension crisis like Illinois is the result of thoughtful program design and years of ongoing stewardship. Wisconsin's policymakers have created and maintained a pension system with four critical elements that greatly improve the odds that the WRS will continue to be strong.

First, in the WRS, the contribution rates necessary to fund the system are set annually by an independent board of fiduciaries. The law requires the board to rely upon actuaries, who make recommendations based upon actuarial science and the system's actual experience. Assumptions are routinely compared to observed experience and adjusted as needed. This helps make sure that the contributions are sufficient to fund the benefits.

Second, the amounts required to be paid, from both employers and employees, are paid in full when due, not deferred to the future. This allows those funds to be invested for longer periods of time and minimizes the chances that one generation will have to pay for the obligations of another.

Third, investment risks of the WRS are shared between governmental employees, employers and retirees. By and large, governmental employees and their employers equally split the cost of contributions required to adequately fund those employees' future WRS benefits. As noted above, that cost is adjusted over time based on many factors, including investment performance.

As for WRS retirees, any post-retirement benefit adjustment depends upon investment performance; they are not guaranteed a cost-of-living adjustment (COLA). A guaranteed COLA is an expensive benefit provided by many other pension systems. In those systems, if investment performance isn't sufficient to fund the guaranteed COLA, significant underfunding can result. Even without a guaranteed COLA, most WRS retirees have historically received post-retirement increases that kept pace with inflation due to strong investment performance, at least until the financial crisis of 2008.

Since that crisis, the WRS has taken back more than $4 billion of those increases. Although this has meant a lot less money going into our local economies and financial pain for many retirees, the WRS has been able to remain solidly funded without asking taxpayers or current public employees to pay more to support retirees.

Finally, the State of Wisconsin Investment Board has been granted the latitude to invest retirement funds prudently, without political interference or other limitations. The board is able to invest in a highly diversified portfolio of assets and manage funds with an efficient combination of internal staff and external experts. This allows SWIB to invest WRS funds in a way that appropriately balances costs, risk and return.

Because of these critical elements, the WRS is a cost-effective, solidly funded public pension plan that is able to pay reasonable benefits into the future. We must continue to act with vigilance and a commitment to sound funding and plan design principles so that Wisconsin can continue to lead the way.

supporting excellence in Wisconsin public service