For Immediate Release
February 26, 2003
Contact: Pam Henning, (608) 267-2929
Department of Employee Trust Funds Announces Effective
Interest Rates and Annuity Adjustments
MADISON -- Eric Stanchfield, Secretary of the Department of Employee
Trust Funds (ETF), announced the 2002 fixed and variable effective
interest rates for active Wisconsin Retirement System (WRS) members
and eligible inactive members. The fixed effective rate
is 5% and the variable effective rate is -23% .
The Department also announced the annual post-retirement adjustments,
which affect approximately 116,000 WRS annuitants. The fixed
annuity adjustment is 0% (no increase) and the
variable annuity adjustment is -27%.
"It's been a virtually unprecedented three years,"
Stanchfield said, referring to the extended down market for investments.
"We are relieved that for this year, retirees will not see
a reduction in the fixed portion of their annuities and that working
employees will earn 5% on their fixed account balances. There were
enough unrecognized Fixed Trust investment gains from prior years
to 'smooth' the volatility we've experienced in the
The fixed effective rate affects the retirement
accounts of the system's 269,000 active employees and the 54,000
inactive members who began employment before January 1, 1982. For
those that participate in the optional variable trust fund, the
negative variable effective rate means that they
will have that portion of their retirement account values reduced
by 23%. Approximately 65,000 active members and 7,500 inactive members
participate in the variable, department records show.
For retirees, the 0% fixed annuity adjustment
means that, for the first time in WRS history, they will not see
a benefit increase (dividend) in the fixed portion of their monthly
paychecks. For variable annuitants, the negative variable
adjustment means that they will see a reduction of 27%
in that portion of their monthly payments. Department records indicate
this will mean an average loss of about $300 a month for variable
SWIB returns influence rates set by ETF
Investment returns of the State of Wisconsin Investment Board (SWIB)
influence the effective rates and annuity adjustments, which are
computed and set by ETF. In January, SWIB reported final 2002 investment
returns of -8.8% and -21.9% for the fixed and variable
trust funds, respectively.
Despite the negative SWIB returns, "paper" investment
gains from previous years* helped keep this year's fixed effective
rate (for actives) positive and allowed a 0% fixed annuity
dividend (instead of a negative dividend). But the computation
process itself actually resulted in a -.3% fixed annuity dividend.
However, under current Board ETF Board policy, instead
of reducing retirees' fixed annuities by -.3%, the negative
figure will be carried over into next year's computation process.
"No one can predict what the markets will do in 2003,"
said Stanchfield, "but it's clear we need substantial,
positive returns in order to avoid a roll-back of some portion of
past fixed dividends next year."
Additional Background information:
- The Fixed Fund (or balanced fund) is the larger of the two trust
funds of the WRS. It has diversified holdings in domestic and
international stocks, bonds, loans, real estate and private equity.
According to SWIB, the market value of the Fixed Fund on December
31, 2002 was $46.3 billion.
- The Variable Fund was created to establish an option that would
enable members to have a portion of their benefit based on the
performance of a broadly diversified stock portfolio. It is primarily
invested in common stocks with annuities that fully reflect the
gains and losses of the investments. While due care and prudence
are exercised in the investment of the Trust, those who have elected
this option risk the possibility that unfavorable stock market
performance could result in losses. According to SWIB, the market
value of the Variable Fund on December 31, 2002 was $4.7 billion.
- Over the past ten years, the average annual fixed annuity dividend
has been 6.1% and the average annual variable annuity adjustment
has been 3.9%.
- Over the past ten years, the average annual increase in the
fixed effective rate has been 11.7% and the average annual increase
in the variable effective rate has been 9.4%.
- Department records indicate the average fixed annuity is currently
$1,533 a month; $18,400 a year. The average variable annuity is
about $1,000 a month.
- The provisions of 1999 Wisconsin Act 11 do not affect the variable
effective rate or variable adjustment paid to retirees
*This year, ETF is able to pass through a positive fixed effective
rate because of the five-year phase out of the "paper"
investment gains in the Transaction Amortization Account (TAA),
as authorized under 1999 Wisconsin Act 11.