Evers asks Godlewski to head new Retirement Security Task Force

Governor Tony Evers has formed the Retirement Security Task Force, and announced that State Treasurer Sarah Godlewski would lead the effort.

In a news release, Godlewski said, like citizens nationwide, Wisconsinites are not saving enough for retirement and that an estimated 400,000 Wisconsinites are at risk of retiring in poverty by 2030. The task force, she said, will “identify effective and achievable solutions that will provide an opportunity for all Wisconsinites to save that is separate from the WRS (Wisconsin Retirement System).”

Below is State Treasurer Godlewski’s overview:

Why a Retirement Security Task Force? 

Wisconsin’s growing elderly population is ahead of the national trend. By 2030, there will be a projected 60% increase in the number of people age 65+. Further, Wisconsinites are not set-up for success. The typical working-age household has less than $3,000 in retirement savings. It’s not that Wisconsinites don’t want to save, it’s that they have been living under economic conditions that have made saving either impossible or inaccessible. Recently, AARP of Wisconsin did a study that identified 1 in 7 registered voters in Wisconsin have no way to save for retirement at work. Yet, 82% would take advantage if a savings program for retirement was available. The Governor and Treasurer believe hard-working Wisconsinites deserve to have peace of mind and feel secure when they retire. 

Financial Risk if No Action is Taken to Address the Retirement Crisis. 

The long-term financial health of Wisconsin is at risk if no action is taken. Projected expenditures on senior programs (i.e. Medicaid, Homestead Tax Credit, Wisconsin Home Energy Assistance Program and Supplemental Security Income) are estimated to be $4.7 billion annually by 2030 an increase of $3.5 billion from 2015. With the cost of living increasing and retirement savings decreasing, it is estimated that 400,000 Wisconsinites are at risk of retiring in poverty by 2030. If lower and moderate income households (up to $40,000/year) were to save 3% of their income through 2030, state expenditures in 2030 may decrease by $3.1 billion annually. 

Why should Public Employees care? 

Public employees work hard and deserve to retire in a financially secure manner. There is a misperception that state employees, to include public educators, have an unfair advantage with savings through the Wisconsin Retirement System (WRS). That said, what the Governor and Treasurer are proposing with this Task Force is to identify effective and achievable solutions that will provide an opportunity for all Wisconsinites to save that is separate from the WRS. 

For more information about the Retirement Security Task Force, please reach out to the State Treasurer’s Office at treasurer@wisconsin.gov or 608-266-1714.

Legislative Update

In other legislative action this week, the Senate and Assembly Committees on Education held a joint public hearing Thursday on a series of bills created as a result of the Legislature’s Blue Ribbon Commission on School Funding. To see the full slate and email the Senate and Education committees, click here. WEAC has not taken a formal position on the bills, having no opposition to the proposals.

To contact your elected officials on any issue, use the “Find Your Legislators” link at www.weac.org/take-action. For more information to get even more involved, email Christina Brey, WEAC Public Affairs.

Bills We’re Watching
See all the bills we’re watching at www.weac.org/bills.

WRS participants to see payment increases

From the Department of Employee Trust Funds

The Wisconsin Department of Employee Trust Funds has announced annuity increases for the nearly 200,000 retirees of the Wisconsin Retirement System. The Core annuity adjustment is 2.0% and the Variable annuity adjustment is 4.0%, effective May 1.

This is the fourth consecutive year of positive Core annuity adjustments.

By design, the WRS does not provide guaranteed cost of living adjustments, or COLAs. Instead, annual Core annuity adjustments (dividends) are based on trust fund investment performance and actuarial assessments to fund current and future WRS retirement benefits.

The State of Wisconsin Investment Board reported final investment returns for 2016 of 8.6% for the Core Fund and 10.6% for the Variable Fund. Approximately 75% of WRS benefits paid come from investment earnings generated by SWIB, which manages WRS trust fund assets.

To limit wide swings in retiree pensions from year to year, gains and losses in the Core Trust Fund are spread (“smoothed”) over a five-year period. This year’s 2% Core annuity adjustment reflects investment results from 2012-2016. Smoothing also helps keep annual changes in WRS employer and employee contribution rates stable.

WRS Facts:

  • The WRS paid nearly $4.9 billion in retirement benefits in 2016. More than 85% of WRS retirees live in Wisconsin.
  • The average annual pension of WRS retirees is approximately $24,700, as of December 31, 2016.
  • With approximately $98 billion in assets, the WRS is the 9th largest U.S. public pension fund and the 25th largest public or private pension fund in the world.
  • Core annuities will be increased if there is an annuity reserve surplus of at least a 0.5% increase, or reduced if there is an annuity reserve shortfall of at least a 0.5% decrease.
  • Annualized annuity adjustments for the Core and Variable Trust Funds, as of December 31, 2016, are as follows:
    • Core, 5-year: 1.4%
    • Core, 10-year: 0.5%
    • Core, 20-year: 2.6%
    • Variable, 5-year: 6.5%
    • Variable, 10-year: 0%
    • Variable, 20-year: 1.5%
  • CPI
    • 5-year: 1.4%
    • 10-year: 1.8%
    • 20-year: 2.1%

Retirement Security forums being held throughout the state

The Wisconsin Alliance for Retired Americans, in coalition with many groups, is presenting information about Retirement Security at a series of forums throughout Wisconsin.

Medicare, Social Security, the Wisconsin Retirement System, Private Sector Pensions and Retirement Savings Accounts are sure to be at the forefront of political attacks over the coming years. It is imperative that we become educated and organize to protect our collective interests.

The alliance is working with the WI State AFL-CIO, area labor councils, the Wisconsin Coalition for Retirement Security, and Protect Our Wisconsin Retirement Security to educate and mobilize retirees across the state to protect and expand the ability to retire with dignity. WEAC is a partner with the Wisconsin Coalition for Retirement Security.

Please see the schedule below and let your friends and neighbors know about these events. More dates and locations will be added to the list below. If you would like a forum in your area, please reach out to the alliance Executive Director, Greg Neil at 608-556-9521 or exec.dir@wi-alliance.org.
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We must ‘carefully watch’ the state retirement system, Vinehout says

Changes in the autonomy of the Investment Board makes it doubly important the public and the Legislature keep a close eye on the money invested and those doing the investing, State Senator Kathleen Vinehout writes in a new column.

In what Vinehout says is a “highly unusual” process, the 2011 state budget gave the State of Wisconsin Investment Board power to create staff positions and set its own budget. “At the recent hearing, members quizzed SWIB officials about rising operating and investment costs, increased risky and expensive investments and poorer performance as measured by one-year and three-year returns compared to nine other states’ pension investments,” she writes. “We’ve got to carefully watch what happens here.”

Here is Vinehout’s entire column:

Kathleen speaking during a committee meeting.“What’s going on with the state retirement system?” the retired woman asked me. She’d started a business but needed retirement income to keep things going. “Wisconsin’s system is the best funded in the country,” I told her. “But we’ve got to carefully watch what happens there.”

More than one out of ten Wisconsinites participates in the Wisconsin’s Retirement System (WRS) either as a current or former state or local government employee. Countless more family members depend on a well-run system to keep their aging relatives out of poverty.

As reported by the La Crosse Tribune in June of 2012, “Wisconsin is the only state in the nation to receive high marks for its public employee pension system.” The article commented on work of the Pew Center for States. Over the years Pew has released several reports analyzing states’ obligation to their employees. Many states have a large funding gap but not Wisconsin.

Much confusion exists as to why Wisconsin is so far ahead of other states. The La Crosse Tribune article reminds us, “The ‘solid performer’ ranking is for fiscal year 2010. That’s before Republican Gov. Scott Walker and the Legislature required public employees to contribute more to their pensions.” Some of the action to protect funds happened late in the last decade despite the recession.

The answer to why Wisconsin is so far ahead of other states in funding retirement lies in the unusual ‘self-righting’ WRS formula that adjusts based on investment returns. Another success factor is the strict discipline WRS follows in collecting contributions. A third factor is action taken in 2003 when the Governor and Legislature authorized General Fund bonds to eliminate the WRS unfunded liability.

Cost to taxpayers is kept low – according to a 2012 state report – “the portion of state and local government budgets allocated to retirement costs was only 1.26%”. Compare this to 2.9% nationally using US Census Bureau data.

Recently the Audit Committee, of which I am ranking minority member, held a public hearing reviewing the agency that manages money in the state’s retirement system. We learned details of an important but relatively unknown part of government that oversees investments known as the State of Wisconsin Investment Board or SWIB.

The Investment Board is to – by law – “manage investment assets with the care, skill, prudence, and diligence that a prudent person would exhibit acting in a similar capacity with similar resources, and for similar types of funds.” As of calendar year 2013, SWIB had an operating budget of $34.9 million and managed assets totaled $101.3 billion. This is by far the largest fund in any part of state government.

Because the retirement system is a ‘mature’ system – meaning the number of retirees is expected to be increasing – the money in the system is necessarily very large. WRS funds make up most of the fund SWIB manages. WRS funds total $93.7 billion.

The role of the Audit Committee in overseeing the activities of the Investment Board took on new meaning when the Governor and the Legislature reduced legislative oversight of SWIB. Those voting for the 2011 budget gave SWIB power to create staff positions and set its own budget. This is highly unusual.

At the recent hearing, members quizzed SWIB officials about rising operating and investment costs, increased risky and expensive investments and poorer performance as measured by one-year and three-year returns compared to nine other states’ pension investments.

Money going to salaries, bonuses and other expenses comes out of investment earnings. SWIB saw a 55.7% increase in operating expenses over a 4 year period (from 2009 to 2013). This increase was during the Great Recession when many public employees saw no raises, took unpaid furloughs, and retirees took deep cuts.

A large part of the increase in the operating budget was due to increases in bonuses – one totaled $660,400! Officials argued that keeping good employees requires an investment.

I’d argue investing in good employees includes helping them through retirement. Changes in the autonomy of the Investment Board makes it doubly important the public and the Legislature keep a close eye on the money invested and those doing the investing.

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