Report Recommends No Changes To Wisconsin Pensions

UPDATED Monday, July 2, 2012 --- 10:00 a.m.

MADISON, Wis. (AP) -- A highly anticipated report ordered by Gov. Scott Walker and the Republican-controlled Legislature is recommending no changes to Wisconsin's $77 billion pension system.

The report released Monday says that given the state pension's strong financial health and its unique risk-sharing features, the state should not move to an optional defined contribution plan or allow employees to opt out of the system all together.

Walker said Monday he has no plans to make "substantial" changes to the system, but he wants to ensure it remains "fiscally sustainable for both taxpayers and retirees."

The report released Monday was written jointly by Walker's Department of Administration, the Department of Employee Trust Funds and the Office of State Employment Relations.

Copyright 2012. The Associated Press

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In reaction to the ETF and DOA study, Governor Walker released the following statement:

The report released today confirms that both taxpayers and pensioners are getting a great deal with the WRS. Compared to other states, Wisconsin consistently rates among the best performing public pension systems in the country.

Both the State of Wisconsin and WRS must be fiscally sustainable moving forward to ensure that we can meet our outstanding benefit obligations, which I am confident we can do. The long term structural changes we made last year will help ensure that the state is able to fulfill the commitment it has made to pensioners.

I want to be very clear: I am currently not planning to make any substantial changes to the WRS. However, I will continue to work to ensure that the WRS is fiscally sustainable for both taxpayers and retirees.

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Press Release from the DOA:

Madison – Today, the Department of Administration (DOA), the Department of Employee Trust Funds (ETF), and the Office of State Employee Relations (OSER) submitted the study of the Wisconsin Retirement System (WRS) to Governor Scott Walker and the Joint Committee on Finance (JFC). As required by law, DOA, ETF, and OSER studied the structure of the WRS and the current Defined Benefit plan provided under the system.

According to the analysis provided by Gabriel, Roeder, and Smith, the independent consulting actuary for the WRS, the WRS is insulated from large swings in annual contribution rates or funding levels due to the plan’s cost-sharing and risk-sharing features. Their findings revealed the WRS is stable and highly funded with low risk to taxpayers. In addition, the study notes taxpayers’ costs to fund WRS have decreased as a result of Act 32, the 2011-2013 state budget.

DOA Secretary Mike Huebsch stated, “Wisconsin will continue to monitor the health of the current system. It is our duty to make sure Wisconsin taxpayers know their tax dollars are being invested efficiently and state employees know their retirement plans are being well managed.”

The study also evaluated the potential effects of establishing an optional Defined Contribution plan. The findings show a Defined Contribution plan would provide zero risk to taxpayers and provide the portability necessary for a highly qualified and robust 21st century workforce. The Defined Contribution plan would also place an emphasis on individual employee investment choices. However, the study notes the professional management of all pooled assets boosts the current Defined Benefit plan.

“The state will continue to look at potential options for reforming the current system because the workforce of the future may not look like our current workforce,” Secretary Huebsch continued. “Taxpayers deserve to have the best and hardest working employees and a 21st century workforce may prefer portability of benefits and freedom offered by other retirement options.”

In addition, the study reviewed an option for employees to opt-out of required contributions and receive the money purchase annuity. The study raised concerns about the impact of this option on the current Defined Benefit plan, since it would reduce overall contributions to the current system’s cash flow position, which may negatively affect contribution rates for those in the current Defined Benefit plan. This option could also raise qualification issues with the IRS for the current plan.

Given the current financial health of the current system, at this time, the study recommends against implementing either the Defined Contribution or the opt-out option for employees.

The full study can be found on the ETF website at the following link. http://etf.wi.gov/index.asp


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