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Bullet Point Summary of 2005 AB 361
as Affected by Assembly Amendment 1 (LRBa0520/1)

Under the Wisconsin Retirement System, annuity benefits are calculated two different ways. One method –– called the “money purchase” calculation –– is based on the accumulated balance of the employee’s contributions into the retirement system and the employee’s life expectancy. The other method is based on a formula involving creditable service and the three highest years of earnings. A WRS annuitant is entitled to the higher result of the two calculations.

2005 AB 361 (LRB-2400/1) – as amended by Assembly Amendment 1 – would affect eligibility for all WRS pensions, regardless of the method by which they were calculated by:

  • Increasing the WRS minimum retirement age for all participants who are not protective occupation participants from age 55 to age 59.5, effective immediately. The minimum retirement age for protective occupation participants (generally police officers and fire fighters) would remain age 50.

Assembly Bill 361 as amended by AA1 would affect only the ‘formula” method of calculating WRS retirement benefits by doing all of the following:

  • Reducing formula annuity benefits by increasing the actuarial adjustment for annuities that begin before the normal retirement age, except for protective occupation participants. Normal retirement age is 65 for most WRS participating employees and age 62 for elected officials and executive participating employees. This actuarial adjustment is currently one of the four factors used to calculate so-called “formula” annuities. The other three factors are final average earnings, years of creditable service and a multiplier based on category of employment. AB 361, as amended by AA1, would eliminate a current law that reduces the actuarial adjustment based on accumulated creditable service. It is this provision, for example, that currently allows a teacher with 30 years of creditable service to receive an unreduced formula annuity as early as age 57. Under AB 361 as amended by AA 1, the earliest a teacher could retire would be age 59.5 and the WRS formula benefit would be reduced by 26.4% at that age, regardless of the number of years of creditable service accumulated by the teacher. The earliest a teacher or other “general” category employee could receive an unreduced formula benefit would be age 65.
  • Eliminating the current authorization for employers to enter into agreements with their employees under which the employer would pay off the actuarial cost of early retirement so that the employee could receive an unreduced formula annuity.

In addition, other provisions of the bill would do the following:

  • Prohibit collective bargaining on the minimum retirement age for Wisconsin Retirement System pensions.
  • Reduce the number of survivors of deceased WRS participating employees (other than protective occupation participants) eligible for the so-called “special death benefit” –– a potentially higher- than-ordinary death benefit. The special death benefit is generally payable as the result of the death of a participating employee who had reached minimum retirement age but continued to work. Under this bill, the deaths of participating employees over 55 but under 59.5 would no longer trigger payment of special death benefits.
  • Push back the age deadline for applying for a separation benefit from age 55 to age 59.5, for participants who terminate participating employment after the effective date of the legislation. By taking this benefit, which is a lump sum payment of the accumulated employee contributions, a vested participant forfeits at least half of the individual’s potential retirement benefit.
  • Delay a participant’s access to his (or her) own voluntary contributions (i.e., those deposits that were made over-and-above statutorily required contributions) until at least age 59.5.

Drafted by Robert Weber, DETF Chief Counsel
May 3, 2005

 

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