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Wednesday, May 30, 2012

Mailbag: Wireman: WRS Pensions Under Attack

WALKER THREATENS RETIREE BENEFITS If you or anyone you know is on the Wisconsin Retirement System or expects to be in the future this is long but well worth reading. Walker likely to change the system in ways that hurt you. I sent you notice of a meeting about it yesterday. Basically it looks like Walker and the Republicans want to privatize the system that could cost CURRENT BENEFITS to current retirees and future retirees. NOW is the Time to Defend it! Months of investigation and reasoned analysis by union leaders, retiree activists, and political scientists have led to the conclusion that the Wisconsin Retirement System (WRS) is under assault by Walker and the Republican majority. Really? How bad can it be? ANSWER: Not good and it could get worse! What’s to Gain? Why the assault? The WRS is under assault for three main reasons: Ideology . . . right-wing desire to end large, public benefit programs just like Paul Ryan wants to do at the federal level with Social Security, desire to “privatize” public pension programs by changing them to 401(k) style programs thereby sending millions in extra fees/charges to Wall Street and investment companies from individual annuitants. to undermine public employment and public employee unions because public employees are the last major opposition to the right-wing agenda for Wisconsin. Public employees have family supporting wages and benefits. By pitting public employee benefits vs. private employee benefits; they attempt to “divide and conquer”! But the WRS is So Sound and Safe . . . The fact that WRS is strong, cost effective, is in the top 4 of public pension programs in America, and is 99.7% funded does not matter. It manages about $77 billion in stocks, bonds, real estate trust funds; $13billion of which is invested in Wisconsin. And it doesn’t bust budgets! State and local government spending for pension contributions in Wisconsin only amounted to 1.26% of total government spending in 2009. Where is the evidence of assault? It began early with the passage of the 2011-2013 State Budget Bill which called for a study to: 1) examine creating a defined contribution plan and 2) determine the feasibility of allowing employees to “opt out” of WRS. The study is due June 2012 and will go directly to the Joint Finance Committee and Governor rather than the legislative committee established by law to review retirement issues. The study may well endorse the above changes as a pre-emptive move to “save” the system from future problems and/or offer employees greater flexibility. Not wanting to wait, in January 2012, Republican Rep. Pat Strachota introduced AB 539 allowing WRS “opt out” for new University of Wisconsin System hires. What is often ignored is that Rep. Strachota is a member of ALEC (American Legislative Exchange Council), an organization comprised of corporations promoting privatization and deregulation , and she borrowed one of their bills to write AB 539! The Wisconsin legislature is full of ALEC members: Robin Voss, Alberta Darling, Scott Suder, Van Wanggard, Terry Moulton and Scott Walker is a former ALEC member. WRS is a complicated system carefully crafted over many decades by Republican and Democratic leaders and even small changes like the April 2012 Wisconsin Employment Relation Commission (WERC) ruling on teacher base pay could have an impact. This ruling will reduce teacher contributions to the WRS as school districts would be able to only negotiate over local base wages, effectively reducing teacher salaries by 20% or more . . . and their 5.8% matching contribution. So, provisions like employee “opt outs”, reductions in contributions , and even changing who gets appointed to WRS governing boards or organizations like the State of Wisconsin Investment Board (SWIB) and Department of Employee Trust Funds (ETF) can all add up and have adverse impacts. Wouldn’t adding a defined contribution option like 401 (k) be a good idea? No. The WRS operates as a defined benefit system which means you receive a known and predictable retirement benefit (annuity) guaranteed for a specified period. Defined contributions plans like 401(k) programs DO NOT guarantee a set monthly benefit. “Retirement income” is the money left at retirement meaning annuity payments are directly related to the current value of the portfolio. Market goes sour? So too does your annuity. The WRS has a small Variable Fund that operates like a defined contribution plan. Because of incredibly high volatility, ETF and SWIB have recommended closing it to new applicants and, in 2008, annuity values went down 40%! You get much greater peace of mind with a defined benefit program! The WRS brings great value because of its large volume transactions and low fees reduce management costs to nearly half that of most defined contribution programs. An added danger of defined contribution plans is “risk shifting.” Employers in defined contribution plans are only responsible for their contributions and take no responsibility for annuity outputs; their stability or adequacy . It is entirely YOUR risk! But my annuity is “guaranteed”! My annuity can’t drop; can it? “Yes” it can. You start with a base or floor which, by Sec. 40.19 WI Statutes, it cannot be reduced below. Over the past twenty five years, good performance allowed annuities to expand well beyond base amounts by about 4.6% per year. Unfortunately the 2008 bank-Wall Street collapse reversed this historic pattern, requiring the WRS to deploy one of its best stability tools: 5-year rolling average adjustment. Through 2013, the fund will re-stabilize itself and hopefully begin rebuilding upward again. In 2012, longer-term annuitants saw a 7% drop in their monthly payment. Many saw a reduction of several hundred dollars in recent years, but no one went below their guaranteed floor! The WRS can self-correct and protect its “floor guarantee”, so long as major market down-turns are not too close together and politicians don’t make matters worse with ill-conceived legislation. However, because the WRS is a defined benefit program, to save the WRS from actuarial failure under the most adverse of scenarios, it could be necessary for the legislature to revisit the “floor guarantee” to allow for greater management flexibility. What can be done to stave off the assault? Walker and Republicans are clearly showing their desire to change the WRS. Vote for Tom Barrett and Mahlon Mitchell on or before June 5th. If you live in a senate recall area, vote Compas in the 13th, Lehman in the 21st , Dexter in the 23rd, or Seidel in the 29th and support them with help and contributions! Democrats have shown far greater support for the WRS than most Republicans. Stay informed and work with others. Join an activist organization like the WI Alliance for Retired Americans, WI Coalition of Annuitants , contact your home union, or join a retiree chapter of your union. Contact or petition YOUR representative and senator! Take a delegation to their office and hold them accountable. Also, consider getting involved by signing a petition found at http://signon.org/sign/save-the-wisconsin-retiremen?source=s.em.cp&r This is the time and moment to defend YOUR retirement system!! For information on WI Alliance For Retired Americans, go to www.retiredamericans.org or call 608-241-1831 . For information on WI Coalition of Annuitants go to www.wicoa.org This publication was prepared by Protect Our Retirement System (POWRS). POWRS is a statewide working group of activist retirees and can be contacted at powrs2012@gmail.com. DEBUNKING THE MYTHS about the Wisconsin Retirement System The Wisconsin Retirement System (WRS) is a defined benefit pension program serving 572,000 active public employees and retirees (12% of Wisconsin’s adult population), affecting about 20% of Wisconsin’s population when families are included. Public employees of 1,400 units of government, including state employees and school districts are covered by the program. It is the 9th largest public retirement system in the country. The WRS provides exceptional return and security for its covered employees. Its nearly $77 billion in assets are managed by the State of Wisconsin Investment Board (SWIB) which invests in a wide array of stocks, bonds, real estate, and other investments. It is a true gem amongst public pension programs. Unfortunately significant disinformation and distortions are now being spread about the WRS in the hopes of undermining it for political gain and to justify program changes in 2013. This flyer reviews some of the more common myths and provides reality checks. Myth 1: Public employee pensions are busting state and local government budgets. Fact: Public employee pensions have very little impact on state and local government budgets in Wisconsin. In 2009, pension contribution costs represented 1.26% of government spending . . .well below the national average of 2.9%. Fact: Investment earnings support all Employee Trust Fund (ETF) administrative costs (about $31 million for 2010) and a great majority of annuitant distribution costs. In 2010, earnings covered 66% of the $3.8 billion in annuitant distribution costs and employee contributions covered an additional amount. Fact: All wages and benefits are earned compensation. No employee gets anything for free! General Employees currently contribute 5.8% of wages to their pensions. Myth 2: Public employees’ “gold plated” retirements are excessively generous. Fact: . In 2010, ETF paid out $3.8 billion in retirement payments. The average retirement benefit was $23,800 per year, 83% of WRS annuities were under $40,000 per year, and 26% were less than $10,000 per year. Fact: These benefits are typical. Nationally, public employee pensions average $23,407 per year. Private sector defined benefit pensions average $20,298 per year. MYTH 3: Public employee pensions hurt Wisconsin’s economy by increasing taxes. Fact: In 2006, WRS beneficiaries (86% of them live in Wisconsin) spent $4.5 billion, accounted for over 33,000 jobs that paid $1.7 billion in wages and salaries and over $730 million in federal, state, and local taxes. Their spending generated $1.48 in economic activity for every dollar paid in benefits. A 2012 study found $5.52 in total economic output for every dollar contributed by taxpayers to WRS. Fact: SWIB invested over $13 billion in Wisconsin companies in 2010 . . . many of whom use Wisconsin employees. WRS is an asset for all of Wisconsin! Myth 4: Defined contribution plans are better than defined benefit programs. Fact: The National Institute on Retirement Security and other organizations report that defined benefit plans, like WRS, are economically more efficient than defined contribution plans, delivering the same level of benefits at nearly half the cost. Most defined contribution (called 401k) programs built on individual investing are far more risky and costly due to added fees/charges than large, public pension programs. Fact: WRS has performed very well. The main Core Fund effective rate of return averaged 10.4% per year over the past 25 years and, because of this performance, the average annuity increased 4.6% per year over this period. Myth 5: WRS is not flexible and doesn’t meet the needs of employees. Fact: WRS has benefits similar to defined contribution plans while providing steady, low-cost performance. WRS provides individual accounts, retention in the event of system departure or job change, and the option for additional contributions. Fact: WRS has a feature called “money purchase” which is similar to a defined contribution plan. This feature allows employees to receive their final annuity as a series of payments based on the current market value of their account. Myth 6: WRS is not sustainable and will not be here for future retirees. Fact: WRS is “fully funded” (99.7%) which means the WRS assets are large enough to cover all expected current and future retirement payments for all current annuitants and active employees. WRS has always met all benefit payment obligations. WRS is rated as one of the top four public employee retirement systems in the nation by the Pew Center for the States . . . a true national leader! Fact: The size of WRS ($77 billion in assets) and the use of several risk management mechanisms to smooth market losses over 5-year periods provides great sustainability and stability. If it isn’t broken…don’t fix it! Sources: NASRA Issue Brief. “State and Local Government Spending on Public Employee Retirement Systems”. National Association of State Retirement Administrators. February 14, 2012. Wisconsin Retirement System, Wisconsin Legislative Fiscal Bureau, January 2011 The Trillion Dollar Gap, Underfunded State Retirement Systems and the Roads to Reform, Pew Center on the States, February 2010. 2010 Comparative Study of Major Employee Retirement Systems. Wisconsin Legislative Council, December 2011. Pensionomics 2009 and 2012, Measuring the Economic Impact of DB Pension Expenditures, National Institute on Retirement Security. February 2009 and February 2012. David Mills and David Stella, “Good Pensions for Everyone Would Boost Economy”, Capital Times, March 10, 2012. Department of Employee Trust Fund information can be found at http://etf.wi.gov/ . This publication was developed by Protect Our Wisconsin Retirement System (POWRS). POWRS is a statewide working group of activist retirees and can be reached at powrs2012@gmail.com .

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