Wisconsin Retirement System Lauded

CHICAGO — The financial health of the Wisconsin Retirement System is sound and should not be tinkered with, a new state study recommends to Gov. Scott Walker and state legislators.

“Unlike every other state and many municipal government systems, Wisconsin’s pension liability is fully funded at this time,” wrote Department of Administration Secretary Mike Huebsch.

The findings echo the Pew Center on the States’ recent analysis of state pension funds based on fiscal 2010 results, which found Wisconsin was the only state with a 100% funded ratio.

The state report assessing the system’s structure, benefits and alternative retirement plans was ordered by the Legislature when it approved a budget last year. Along with Huebsch, it was completed jointly by the secretary of the Department of Employee Trust Funds and the director of the Office of State Employment Relations. It was released publicly on Monday.

The study evaluated the possible benefits of other retirement plan structures like a 401(k)-style plan, and concluded that no changes should be made given the current system’s financial health.

The study concluded that the system benefits from a unique cost and risk-sharing feature that allows for annuity payments to be altered depending on available resources. That insulates the plan from large swings in annual contribution rates or funding levels.

When the market took a nosedive following the 2008 financial crisis, the Wisconsin Retirement System reduced annuities. It has cut them by almost $3.2 billion since then.

“As a result, the WRS was able to weather much of the financial storm,” the report reads. The system’s strong funding status has remained consistent, coming in at above 90% over the last 20 years and reaching full funding in 2004 after borrowing in $1.8 billion of taxable bonds.

The state used $700 million of the proceeds to wipe out its unfunded pension liability to the WRS and $782 million to clear out its liability under a program that compensates retiring employees for their unused sick days.

Between 2002 and 2010, an average of 11% of WRS pension revenue came from taxpayer-funded employer contributions, 13% from employee contributions and 76% from investment earnings. Rating agencies have long cited Wisconsin’s full funding status as a positive credit factor in the state’s double-A level general obligation ratings that helps offset its otherwise higher-than-average debt ratios.

The analysis tracks the system prior to Walker taking office last year and implementing changes that reduce the public’s share of covering benefits by raising employee contributions. Savings for state and local governments are estimated to eventually total around $690 million annually.

The study also concluded that benefit levels are lower than most major public plans.

“The report released today confirms that both taxpayers and pensioners are getting a great deal with the WRS,” Walker said in a statement. Aides said the governor is not planning any changes to the system at this time.

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