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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Arizona Pension Lowers Employee Contribution Rate For First Time in 5 Years; Strong Investment Returns Cited

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Starting in July, members of the Arizona State Retirement System will pay a smaller percentage of their paychecks toward the pension system. It’s the first contribution rate decrease in five years, but it comes with a catch: retirees will not receive a cost-of-living raise in 2015.

More details on the contribution rate decrease from the Arizona Republic:

The decrease in the contribution rate, which was approved by the ASRS board of trustees, is the first in five years.

Chairman Kevin McCarthy said the reduction is small — a fraction of 1 percent — but a step in the right direction. He said it will save money for public employees and employers “who have seen nothing but increases.”

The reduction is possible because of large investment returns this past fiscal year. In addition, roughly 500 more public employees joined ASRS and began paying into the trust. Since 2009, the system annually lost thousands of active members — and their payments — because of government layoffs.

And details on the COLA:

Barbara Masztakowski, who retired in 2003 from Chandler, said it’s not fair that retirees are not getting an increase when ASRS investment staffers are.

“Truly, they should treat themselves the way they treat us,” Masztakowski said in a phone interview.

She said the formula that ASRS uses to trigger benefit increases for retirees is nearly impossible to achieve.

For a permanent benefit increase to kick in, the trust must produce a rate of return in excess of 8 percent — the assumed rate of investment growth — for 10 years and generate a pool of excess earnings.

That formula uses a “geometric and actuarially smoothed average” that takes into account compounding. The current 10-year average is about 7.6 percent, below the trigger.

Although ASRS retirees have not received a cost-of-living adjustment for nearly a decade, retirees in the more financially fragile state Public Safety Personnel Retirement System saw their COLA benefits restored earlier this year after winning a lawsuit. The ASRS retirees were not part of that case.

Paul Matson, ASRS executive director, said he understands retirees may not be happy but said he expects a benefit increase within the next few years.

The lack of a COLA is controversial among retirees because 10 of the System’s investment staffers are receiving bonuses in 2015 totaling $225,000. Fund investments returned 18.6 percent overall last fiscal year.


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