The state of Wisconsin and its local governments are facing relatively low levels of fiscal pressure from unfunded pension liabilities and costs, says Moody's Investors Service.
In the report "Wisconsin Pensions are Well Funded and Stable," Moody's attributes the lack of pressure to the authority the state has to prospectively change benefits, risk-sharing attributes of its largest pension system, and pension costs that are relatively stable.
One well-funded plan, the Wisconsin Retirement System (WRS), encompasses the vast majority of public pension liabilities in Wisconsin, which is rated Aa2 stable, although the city of Milwaukee, rated Aa3 stable, and the county of Milwaukee, Aa2 stable, have local plans.
"Wisconsin's adjusted net pension liability was only 13.8% of its revenues in fiscal 2012, compared to a state median of 63.9%," said Moody's Assistant Vice President-Analyst Tom Aaron. "This is largely due to risk-sharing between the state and local governments with employees, and the state and participating local governments' consistent funding of their actuarial payment requirements."
In WRS, the state determines both pension benefits and contributions.
State statute allows for the state to change benefits for the future service of both current and future WRS employees. The changes have withstood court challenges.
On the cost side, contribution requirements to WRS have remained relatively stable over the past decade, aided by 2011 legislation requiring non-public safety employees to contribute half of normal costs. Further, the state and participating local governments have consistently met actuarial payment requirements.
The WRS also has two key features Moody's expects will help Wisconsin's pension costs to remain stable.
First, active employees share in risk through their contributions, as experience such as investment gains and losses are amortized as part of normal costs, of which many employees must pay half.
Second, retired WRS participants share the risk of investment performance through a system of contingent dividend payments. Employees and retirees are also able to direct a portion of their contributions into a "Variable Fund," which is weighted toward equities. Benefits increase if investment returns are favorable, but employees and retirees also risk benefit reductions in adverse investment environments.
