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 benefitplans, 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.