CHICAGO - The healthy condition of Wisconsin and most of its local governments' pension plans offer a bright spot on the landscape of public pension plans nationally, according to Moody's Investors Service.
Wisconsin and its local governments face relatively low levels of fiscal pressure with a stable outlook due to distinct traits that aid in the maintenance of their health, Moody's wrote in a special report published Tuesday.
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.
Wisconsin's adjusted net pension liability, a special calculation Moody's uses to assess pension obligations, was only 13.8% of its revenues in fiscal 2012, the second lowest in the nation based on Moody's assessment and well below the 50-state median of 63.9%.
The state's fully funded pension system is cited in rating reports as a strong positive feature of the state's credit. Moody's rates the state's general obligation bonds Aa2 with a stable outlook.
"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," writes Moody's analyst Tom Aaron, an assistant vice president.
The Wisconsin Retirement System covers most public employees although the city of Milwaukee, rated Aa3 stable, and Milwaukee County, rated Aa2 stable, manage their own local plans. The city, county, and Milwaukee school district all rank in Moody's "moderate" category when compared to peers nationally when the ANPL is compared to government revenues and full property valuation.
For WRS, the state determines both pension benefits and contribution levels. State statute permits benefit changes for both current and future WRS employees and those legal provisions have survived court challenges. The city and county lack similar flexibility although the county has appealed this issue to the state Supreme Court.
Wisconsin's position runs counter to its neighbor to the south, Illinois, which severely limits benefit changes for current employees with strong protections built into the state constitution. Cuts adopted late last year to help stabilize a system saddled with more than $100 billion of unfunded obligations are being challenged. If overturned, it's unclear how the state will solve its pension ills.
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. At the same time the state and participating local governments have consistently met actuarial payment requirements. In Illinois, most contribution levels are set in state statute based on a formula that is not tied to an actuarially sound method.
In Wisconsin, active employees share in risk through their contributions with investment gains and losses being amortized as part of normal costs, of which many employees must pay half. Retired WRS participants also share the risk of investment performance with their annuities impacted by results.
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.
The 2011 Act 10 legislation reduced the benefit multiplier for certain participants in WRS and required non-public safety employees participating in WRS to contribute half of the ARC for normal costs to WRS. It also eliminated the authority of the state and local governments to "pick-up" employee contributions except for public safety employees where such contributions were negotiated as part of a collective bargaining agreement.
The controversial law prompted mass protests at the time due to curbs on collective bargaining but the Wisconsin Supreme Court has upheld the changes.
