Department of Employee Trust Funds
March 16, 2016
ETF Announces Annuity Adjustments
Core Fund: 0.5%
Variable Fund: - 5.0%
Retired members of the Wisconsin Retirement System will receive a Core annuity increase of 0.5% this year, ETF has confirmed. The Variable annuity adjustment is a negative 5.0%.
“Given the turmoil in the financial markets over the last couple of years and flat investment returns in 2015, it’s good to be able to provide a positive Core adjustment,” said ETF Secretary Robert Conlin.
The annuity adjustment affects the pensions of the retirement system’s 192,000 retirees, more than 85% of whom reside in Wisconsin. Some 39,000 also participate in the optional Variable Trust Fund.
The annuity adjustments, recommended by ETF’s consulting actuary and approved by the ETF Board chair and Secretary Conlin, first take effect on retirees’ May 1 payments.
“Looking ahead, retirees should prepare for continued volatility and low returns in the investment markets, which may lead to relatively flat – or even negative – Core annuity adjustments over the next few years,” said Conlin. “While the long-term investment outlook is more positive, there will be some near-term challenges – albeit hopefully nothing like what happened in the years following the Great Recession.”
By design, the WRS does not provide for an annual cost of living increase, or COLA. Instead, annual annuity increases and decreases depend solely on trust fund investment performance and current and future projected WRS funding needs. Approximately 76% of WRS benefits paid come from investment earnings generated by the State of Wisconsin Investment Board, which manages WRS trust fund assets.
In January SWIB announced investment returns of -0.4% for the Core Fund and -1.2% for the Variable Fund for calendar year 2015.
Core Fund investment returns are spread (“smoothed”) over a five-year period. Smoothing works to reduce the year-to-year volatility of the markets and the impact that can have on retirees’ annuities. The Core annuity adjustment calculation process this year incorporated investment returns from 2011-2015. The Variable Fund is not smoothed.
Required contributions for WRS employers and employees also fluctuate with investment performance. The ETF Board will consider actuarial recommendations for 2017 contribution rate changes in June.
- ETF paid approximately $4.5 billion in retirement benefits to retirees and beneficiaries in 2015.
- The average annual annuity received by retirees (Core and Variable combined) is $24,780, as of December 31, 2015.
- The WRS has approximately $92 billion in assets as of December 31, 2015. It is the 9th largest U.S. public pension fund and the 24th largest public or private pension fund in the world.
- Annualized annuity adjustments for the Core and Variable Trust Funds, as of December 31, 2015, are as follows:
- Core, 5-year: 0.2%
- Core, 10-year: 0.6%
- Core, 20-year: 2.8%
- Variable, 5-year: 4.2%
- Variable, 10-year: 0.6%
- Variable, 20-year: 2.0%
Additional ETF resources: