Tag: Wisconsin Retirement System

Wisconsin Pension To Hand Out “Modest” Benefit Boosts After Investments Outperform Benchmarks

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The State of Wisconsin Investment Board announced Wednesday that the state’s retirees will receive a “modest” boost in pension benefits this year.

The benefit increase will kick in around May, said a board spokeswoman.

Meanwhile, employee contribution rates will likely decline.

The boost was triggered by double-digit returns on pension investments in 2014.

From the Wisconsin State Journal:

The trust funds for state employees and retirees saw returns in 2014 that will result in “modest” pension and interest rate increases, the State of Wisconsin Investment Board said Wednesday.

[…]

The changes in retirement checks will occur in May, [said Vicki Hearing, board spokesperson] and the final rate has not yet been set by Department of Employee Trust Funds.

The board has earned positive returns each year since 2009 for the Core Fund and in five of the last six years for the Variable Fund.

Robert Conlin, secretary of the Department of Employee Trust Funds, said in the statement that the returns “mean that the positive momentum will continue in 2015, as we’ll be able to provide retirees another increase in their annuities and contribution rates for active employees and employers should continue their trend lower.”

A breakdown of the investment returns that allowed the benefit increase to happen, from the Wisconsin State Journal:

The $88.7 billion Core Fund, with a diverse portfolio, yielded a preliminary return of 5.7 percent, putting its five-year return at 9.3 percent. The Variable Fund, a stock fund, ended the year with a preliminary return of 7.3 percent and a market value of $7.3 billion.

Both funds ended near the one-year benchmark returns set by the board. The Core Fund is 5.6 percent and the Variable fund is 7.5 percent. For the three-, five- and 10-year periods, both funds are ahead of their benchmarks, according to Vicki Hearing, board spokesperson.

The Core Fund returned 13.6 percent and 13.7 percent in 2013 and 2012, she said. The Variable Fund returned 29 percent and 16.9 percent in those years.

The State of Wisconsin Investment Board manages $96 billion in pension assets for the Wisconsin Retirement System.

 

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Think Tank: Wisconsin Has Country’s Best Funded Pension System

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The think tank State Budget Solutions has released a report which names Wisconsin’s pension system the most well funded in the nation.

It’s the second year in a row the think tank has given Wisconsin that title.

From the Wisconsin Reporter:

The Badger State once again has the most well-funded public pension system in the nation, according to a study released this week by State Budget Solutions, a fiscally conservative think tank based in Virginia.

The Wisconsin Retirement System also has the lowest percentage of unfunded liability as it pertains to the 2013 gross state product and the second lowest cost per capita, only behind Tennessee, the report says.

But don’t go ordering balloons, streamers and other party favors just yet. You’re going to need the extra cash.

Wisconsin’s estimated funding ratio of 67 percent is still below the 80 percent benchmark that’s considered healthy by industry standards, and each resident in the state would have to pay $6,720 to erase the pension system’s $38.6 billion in unfunded liabilities, the study says.

The SBS report lists Wisconsin’s funding ratio at 67 percent. But the state says its system is 99.9 percent funded – and it didn’t pull that number out of thin air; the number originated from a 2013 Morningstar analysis.

What accounts for the stark difference?

The SBS report measured liabilities using different methods that the state, including a much lower assumed rate of return on pension investments. More from the Wisconsin Reporter:

For its survey, State Budget Solutions used a discount rate of 2.73 percent, the approximate equivalent to the yield of a 15-year U.S. Treasury bond. The state uses a discount rate of 7.2 percent for active participants prior to their retirement and 5 percent for retired members and for active and inactive participants following retirement, according to the Department of Employee Trust Funds.

Although Wisconsin’s discount rates are among the lowest in the country, Luppino-Esposito doesn’t think they are low enough.

“We base our numbers on a discount rate that carries much less risk,” Luppino-Esposito said. “We would rather the pension plan make safer investments and ensure stability for pensioners and state residents who will lose out on vital services if the pension liability becomes too large.”

To validate his organization’s methods, Luppino-Esposito pointed to a Moody’s Investor Services report released in September that shows the unfunded liabilities of the 25 largest state pension plans — including Wisconsin’s — tripled to nearly $2 trillion between 2004 and 2012, despite coming close to meeting their “lofty investment return goals.”

“The most recent Moody’s report shows us that even if investment targets are met, high discount rates will cause the funds to come up short by trillions of dollars,” Luppino-Esposito says in his study.

Read the SBS report here.

Read Morningstar’s 2013 report here.