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
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
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.