For Immediate Release
February 25, 2002
Contact: Pam Henning, (608) 267-2929
Department of Employee Trust Funds Announces 2001
Annuity Dividend and Variable Adjustment for WRS Retirees
MADISON -- Eric Stanchfield, Secretary of the Department of Employee
Trust Funds (ETF), announced that Wisconsin Retirement System (WRS)
annuitants will get a 3.3% dividend (increase)
in the Fixed Fund portion of their May 1 retirement checks. The
Variable Fund adjustment is a decrease of 14%.
The 3.3% annuity increase has an impact on the retirement income
of approximately 112,000 WRS annuitants, nearly 90% of whom reside
in Wisconsin. Approximately 27,000 retirees also participate in
the Variable Fund; they will have this portion of their monthly
retirement annuities reduced by 14% this year.
In comparison, the Consumer Price Index (CPI) for fixed annuities
increased just 1.6% in 2001. Over the past ten years, the average
annual increase granted to the fixed portion of WRS retirement annuities
has been 5.6%, where the CPI average is 2.5% over that same period.
"We are very pleased to be able to give retirees a raise in
the fixed portions of their annuities that exceeds the 2001 increase
in the Consumer Price Index (CPI)," said Stanchfield, who added
that gains in the Fixed Trust over the past few years have worked
to "smooth" recent volatility in the market.
Department records indicate the average fixed annuity is currently
$1,533 a month; $18,404 a year.
ETF was able to grant a fixed annuity increase due to the Transaction
Amortization Account (TAA) payout of $1.98 billion in 2001 and because
SWIB losses from 2000 and 2001 are spread over a five-year period.
By law, only a percentage of the difference between the market value
and purchase price of stocks and bonds in two accounting mechanisms
used to "smooth" market volatility can be distributed
to the trust fund accounts annually. The two mechanisms currently
at work are the TAA and the newly created Market Recognition Account
(MRA). 1999 Wisconsin Act 11 provided for a five-year elimination
of the TAA when it created the MRA. This is the second year of the
TAA phase-out; 20% of the TAA balance as valued at the end of the
year for the next three years is being paid out, and investment
gains and losses are credited instead to the new MRA.
Eventually, the MRA will be the sole accounting mechanism for smoothing
fixed trust earnings. The change to the MRA will mean a faster recognition
of gains and losses than occurs with the current TAA.
Summary and Additional Background Information
- Over the past 10 years, the Variable annuity adjustment averaged
6.4% annually, compared to the CPI average increase of 2.5%.
- Over the past 19 years, the Variable annuity adjustment averaged
7.2% annually, compared to the CPI average increase of 3.2%.
- Over the past 19 years, the Fixed annuity dividend has averaged
6.0%, compared to the CPI average increase of 3.2%.