WRS: What is it? The attack against it. How to protect it.

1. WRS: What is it? The attack against it.How to protect it. UW-Madison March 2012

2. Programs Sponsored by: • UW Allied Employee Organizations: • American Federation of State County and Municipal Employees • Wisconsin University Union • SEIU-Health Care • AFT-W

3. Presenters • Susan McMurray • AFSCME Wisconsin • Government Relations David Ahrens • Wisconsin University Union

4. Wisconsin Retirement System 1875:American Express establishes first private pension plan. 1891: The first public employee pension plan in Wisconsin is established. 1911: A retirement system is established for all teachers, university staff. 1981: Multiple retirement systems for public employees are consolidated into a single system (except for Milwaukee City & County).

5. Statutory Purpose of WRS • To establish equitable benefit standards throughout public employment. • To achieve administrative savings. • To promote economy and efficiency in public service, facilitating the attraction and retention of competent employees.

6. Employee Trust Funds (ETF) • Oversees many employee benefits including health and life insurances, retirement plans and annuities. • Secretary (Conlin) appointed by 13-member ETF Board. • It has approximately 230 employees.

7. State of Wisconsin Investment Board (SWIB) • Oversees investments of contributions. • Currently has a portfolio of $84 billion. • Director (Bozarth) is appointed by Board of Trustees consisting of nine members w/ specific requirements. • State employee staff invests at much lower cost than private investment firms. • ETF + SWIB= WRS

8. WRS: A KEY Economic Factor • There are over 267,000 active participants. Additional 150,000 have pension rights but are no longer employed. • In 2009, 150,000 annuitants received $3.7 billion in pension benefits. (Avg= $24,000 yr) • 90% of annuitants live in Wisconsin. • Covers all public employees (exc. Milwaukee City & County) including legislators.

9. WRS: An Effective Economic Engine • (In 2006) WRS annuity payments in Wisconsin resulted in $4.5 billion in economic activity and 33, 000 jobs. (National Institute of Retirement Security) • SWIB investments in corporations with Wisconsin ties totaled more than $8.5 billion in 2008.

10. WRS is Highly Efficient • Over 2/3 of annuities are from investments- the remainder from employer/employee contributions. • Efficiently manages funds at a relatively low cost: $.2 B to manage $84 B. • Or .002% and declining! (Compare to private funds that typically demand .015% ++) • Effective: Over 10 years- pension increases have equaled wage growth.

11. WRS: Efficient/ Effective (2) • Pew Center on the States, April 2011 ‘Wisconsin is a national leader in managing its long-term liabilities for both pensions and retiree health care and other benefits. It has funded nearly 100% of its total pension bill—well beyond the 80% benchmark that the U.S. GAO says is preferred by experts—by consistently meeting its actuarially required contributions.”

12. Appleton Post Crescent, 4/2011 “Wisconsin’s budget may be in a hole, but the state’s pension system is among the healthiest in the nation. In fact, the Badger State was one of just two states to fully fund its public employee pension in 2009 . . .”

13. 2011 Contributions

14. A Pension Primer

15. Defined Benefit (DB) • Defined Benefit: (WRS) Benefit is based on: $40,000 (Salary) x 30 (Yrs of Service) x .016 (“multiplier”) =$19,200 For legislators/executives: $75K x 20 x .02= $30,000 • All contributions are pooled for shared risk. • Base benefit (e.g. $19,200) is minimum though later benefits can fluctuate w/ market. • Benefit continues for life of employee.

16. Defined Contribution (DC) • Typically a 401-K , 403-B. • All risk is assumed by the employee. • Individual accts can run out of funds…. • Managed by financial services company- much higher service fees. • Variable contribution level from employee/er. • Voluntary participation: lower-paid employees tend to opt-out. • Can be transferred from job-to-job.

17. Current Threats to WRS • Stratchota Bill: AB 539: Allows Bd. Of Regents to establish a defined contribution (DC) plan for future employees. Only 5 Assembly sponsors. • Milwaukee County looks at changing pension program. Study finds savings with 401(k)-type plan “By phasing out Milwaukee County's expensive defined-benefit pension plan in favor of a new 401(k)-style program, the county could save as much as $1 billion over the next 50 years, according to a new study.” • Milwaukee Journal-Sentinel. Jan.29, 2012

18. WRS Study Committee • Created in Budget Bill. • Reports on June 30, 2012 to Joint Finance & Governor (NOT Jt Survey Comm Retirement) • Members: Sec, Dept of Administration (Huebsch) Sec, Dept of ETF (Conlin) Director, Office of State Employee Relations (Gracz)

19. Charge of Committee • Establishing a “defined contribution” plan as an option for participating employees.. • Permitting employees to not make employee required contributions….and limiting retirement benefits for employees who do not make employee required contributions to a money-purchase annuity .. Section 9115/ ACT 32

20. National Perspectives • National decline in DB plans in private sector from 41% (1978) to 21% (2009). Caused major reduction in pension benefits; heavier reliance on Social Security. • Public pensions under attack from American Legislative Exchange Council (ALEC), Heritage Foundation, etc. • Unlike Wisconsin, some public employers have under-funded their pension plans, e.g. Illinois, Rhode Island, California.

21. American Legislative Exchange Council (ALEC) Statement of Principles on State and Local Government Employee Pension and Other Post-Employee Benefits Plans To solve the funding crises in state and local defined benefit pension and other post employment benefit plans for public employees ALEC recommends that defined benefit plans be replaced by defined contribution plans.

22. WPRI (2009) • “Wisconsin’s pension system has simply overstayed its welcome. Not only is it expensive, it is far out of the mainstream when compared to what the vast majority of Wisconsin employers offer their employees. The next governor should make it a priority to bring radical reform to the Wisconsin pension system.”

23. Arguments for Change • Envy: Walker: “War of the “haves” (public employees) against the “have-nots” (private sector employees).” • Use of Anecdote: Spotlighting a few public employees w/ large pensions as typical. • Fear: Use examples of other states w/ under-funded (<70%) liability. • False choice: Let individuals decide!

24. Walker on Public Pensions • “I think any of us who are honest understand if you don’t get legacy costs under control, it’s a virus that will eat up and eat up and eat up more and more of your budget. It’s the same problem that Chrysler and GM got into, and state and local governments have to fix it.” • From: Daily Caller Interview w/ Ginni Thomas Jan. 15, 2012

25. Why Do They Want to Change It? • Thousands of lower paid employees will likely quit system and many will decrease their contribution saving $10,000,000(s). • Management fees will be paid by employees. • Financial Services Industry: They will have access to $billions in pension $. • Campaign contributions/ lobbyists, etc. • Ideology: Private sector, not govt. should control pension services.

26. Questions after the report:6/30 • Who will be the Governor? • Which party will have the Senate majority? • Legislative Floor period ends 3/15/12. • Will likely be substantively addressed next session, starting 1/2013 depending on party control

27. Stop AB 539 Arguments: Why change the system before the study is released? Is this a case of “premature introduction” or a foot- in- the- door? What is the evidence of a problem due to a lack of a defined contribution plan? Or, is this a “solution” in search of a problem? The bill must be passed by both houses before end of floor session.

28. How to Stop It

29. How to stop it (2)

30. How to Stop It (3)

31. How to Stop It (4) • State of Wisconsin Investment Board: http://www.seib.state.wi.us • National Institute on Retirement Security: nirsonline.org • AFSCME: http://wiafscme.org • Soon to be released: stoptheattackonwrs.com