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News

Press Release

For Immediate Release
February 13, 2007

Contact:

Bob Conlin, Director
ETF Communications Office
(608) 261-7940


Department of Employee Trust Funds Announces Effectives Rates of 9.8% and 18%

MADISON, Wis. – Eric Stanchfield, Secretary of the Department of Employee Trust Funds (ETF), announced the effective interest rates credited to the retirement accounts of employed Wisconsin Retirement System (WRS) members and eligible inactive members. For 2006, the Core (formerly Fixed) effective rate is 9.8% and the Variable effective rate is 18%. The rates apply to the retirement accounts of the 262,000 state and local government workers covered under the WRS, including teachers, law enforcement officers, firefighters, and University of Wisconsin employees.

The Department expects to release information on the Core dividend and Variable adjustment, applied annually to WRS retiree pension payments, in the coming weeks.

ETF calculated the effective rates based on finalized State of Wisconsin Investment Board (SWIB) investment results for 2006, which were 15.8% for the Core Fund and 17.6% for the Variable Fund. The agency earlier stated it exceeded established Core Fund benchmarks for the fourth consecutive year. “This is very good news for our members,” said Stanchfield, “SWIB’s investment professionals have done a terrific job investing the trust funds; their success is a direct result of following a carefully-designed, long-term approach to preserving the financial stability of the WRS.”

At the same time, however, Stanchfield noted that the trust funds are still recognizing losses from 2002. That is because Core Trust Fund investment gains and losses are “smoothed” over a five-year period, and 2002 is the last year for which losses from the bear market of 2000-2002 will be a factor in the rates. As a result, the calculation of this year's Core effective rate includes nearly $1.8 billion in losses from 2002. The Core annuity dividend calculation, which is derived from the effective rate calculation process that precedes it, will also reflect that loss.

Additional background information:

  • The ten- and five-year (compounded) average annual Core Trust Fund effective rates are 10.5% and 7.4%, respectively.
  • The ten-and five-year (compounded) average annual Variable Trust Fund effective rates are 8.9% and 8.2%, respectively.
  • The Core Fund (or balanced fund) is the larger of the two trust funds of the WRS. It is a balanced fund of diversified holdings in domestic and international stocks, bonds, loans, real estate and private equity.
  • The Variable Fund was created as an option for members to have a portion of their benefit based on the performance of a broadly diversified stock portfolio. Those who have elected this option can experience significant gains, but they also risk significant losses from unfavorable stock market performance. About 28% of the 262,000 WRS active employees participate in the Variable Fund.
  • Inactive participants are those who have left public service but still keep their retirement accounts open. About 45% of the retirement system's 123,000 inactive members qualify for effective rate interest crediting. The rest by law receive a 5% increase.

 

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