A recent report by The Pew Charitable Trusts identified key WRS practices that make the Badger State one of the “well-funded states with tools to manage risk.”
The October 2023 issue brief on state pension funding gap in 2021 highlighted how Wisconsin has "demonstrated that fiscal discipline and sound policy can help states keep pension promises by maintaining full funding and stable costs."
Titled "Public Retirement Systems Need Sustainable Policies to Navigate Volatile Financial Markets," the report said that while pension liabilities across states have generally improved in 2021, it is still unclear if this can be sustained in the long run. It, then, detailed how other states could learn from the WRS experience.
Stress Testing
Pew recommended other states to conduct stress testing, which ETF does for actuarial analysis, and SWIB performs to evaluate WRS’s investment strategy.
The Pew report wrote, "In some states, such as Wisconsin, stress testing demonstrates that current policies are sufficient to maintain high funding levels with minimal uncertainty about contributions."
Benefit Adjustment and Sharing
Also noted in the report is how public pension plans have included provisions that adjust contributions or benefits based on plan funding, investment returns, or other actuarial factors.
While this implies that workers and retirees bear some of the risks, the Pew report said that gains can also be sustainably shared as shown in Wisconsin.
It said that Wisconsin retirees received annuity adjustments of 5.1% and 7.4% in 2020 and 2021, respectively, but only 1.6% in 2022.
"As a result, even with recent high inflation rates and the low increase in 2022, retirees in Wisconsin’s public pension system had more protection from inflation than the typical public retiree," it said.
Apart from Wisconsin, other states deemed by Pew as well-funded — those with pension plans that had stable contributions from 2008 to 2021 and were fully funded in 2021 — were Idaho, Nebraska, South Dakota, and Tennessee.
Last year, Pew interviewed ETF Sec. John Voelker on how Wisconsin weathered market volatility during the pandemic. It became one of the sources cited in the issue brief.