By Scott Bauer
MADISON — A highly anticipated report ordered by Gov. Scott Walker and the Republican-controlled Legislature and released Monday recommended no changes to Wisconsin’s $77 billion pension system.
Democrats and public workers were fearful that the report would recommend dramatic changes to the pension system, which is the only fully state-paid plan in the country. Walker had asked for the study to focus on the possibility of shifting to an optional defined contribution plan or allowing employees to opt out of the system all together. The report said that neither would amount to an improvement, given the state pension’s strong financial health and its unique risk-sharing features.
After its release, Walker said in a statement that he remained open to making changes to the Wisconsin Retirement System but he didn’t say what they might be.
“I want to be very clear: I am currently not planning to make any substantial changes to the WRS,” according to the statement attributed to Walker. “However, I will continue to work to ensure that the WRS is fiscally sustainable for both taxpayers and retirees.”
The Republican co-chairs of the Legislature’s budget committee issued a joint statement similar to Walker’s, saying they didn’t want to make “significant changes” to the system.
“This review is extremely helpful as we begin to work on the next state budget and continue to make sure our retirement system is fair to the taxpayer and competitive in the global marketplace,” according to the statement attributed to Sen. Alberta Darling and Rep. Robin Vos.
Democrats expressed concern that Walker was keeping the door open to possible changes, despite the report.
“When something works well, like the Wisconsin Retirement System, there is no purpose in making any changes,” said Democratic Sen. Fred Risser of Madison.
Walker might change how money is invested and impose a uniform retirement age for all in the plan, said Karen Holden, emeritus professor of public affairs and consumer science at the University of Wisconsin-Madison who has done research on pension policy.
But the report’s findings that Wisconsin’s system is strong and should not be changed are not a surprise, Holden said.
“This is a very well-managed system and I think the report came to that judgment with very good data,” she said.
The report, written by the Department of Administration, the Department of Employee Trust Funds and the Office of State Employment Relations, cited numerous problems that could happen if the state instigated changes.
Defined contribution plans, such as a 401K, are common in private businesses and have no guaranteed payout to retirees. Benefits are guaranteed to workers in a defined benefit plan, as Wisconsin offers its employees. While a defined contribution plan would provide no risk to taxpayers, the report said the professional management of all pooled assets under the current system increases the performance of the defined benefit plan.
Employers and employees would have to pay more to get the same level of benefit they have now if the state would move to a defined contribution system, the report said. It also said such plans typically had higher administrative costs.
The study also raised concerns about allowing workers to opt out of making required payments to the system.
Doing that negatively could affect contribution rates for those already in the system and present tax qualification issues with the Internal Revenue Service for the current plan, the report said.
“Wisconsin will continue to monitor the health of the current system,” said Mike Huebsch, secretary of the Department of Administration and a Walker appointee. “It is our duty to make sure Wisconsin taxpayers know their tax dollars are being invested efficiently and state employees know their retirement plans are being well managed.”
The report comes in the wake of a study by the Pew Center on the States last month that determined Wisconsin was the only state in the country with enough money set aside to meet its current obligations and to pay pensions that have been promised to public employees.
A unique feature of Wisconsin’s pension system adjusts payouts to state workers based on how well the investments are doing, which Monday’s report cited as a key factor separating Wisconsin’s fully paid system and other states not faring as well. That flexibility has allowed Wisconsin to weather the recession by reducing payouts to workers, rather than turning toward tax dollars or other means to make up the difference.
The average payout to a Wisconsin retiree is about $1,700 a month. Benefits steadily had been increasing, but after the 2008 recession they dropped for the first time in 26 years. Three consecutive years of gains have yet to offset the losses.
Almost all public workers in the state are covered under the system that was established in 1951. Only the city of Milwaukee and Milwaukee County maintain separate pension systems. There are 169,000 retirees in Wisconsin’s system receiving payments. Another 261,000 workers in state and local government and 148,000 who no longer are working for a government employer but who are not receiving benefits also are a part of the system.
Part of Walker’s proposal last year that helped spur the effort to recall him from office required public workers to contribute half of their pension contributions, which was about 5.9 percent of their salary. That was part of a larger plan that also forced them to pay more for health insurance and took away almost all their collective bargaining abilities.
Under other changes made last year, newly hired public workers must work five years before they fully are vested in a Wisconsin Retirement System annuity. There was no minimum before. Also, workers must be employed at least two-thirds time, instead of one-third time, to qualify for the retirement system.