UW-Madison March 2012  UW Allied Employee Organizations: ◦ American Federation of State County and Municipal Employees ◦ Wisconsin University Union ◦ SEIU-Health Care ◦ AFT-W  Susan McMurray  AFSCME Wisconsin  Government Relations David Ahrens  Wisconsin University Union 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).    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. Oversees many employee benefits including health and life insurances, retirement plans and annuities.  Secretary (Conlin) appointed by 13member ETF Board.  It has approximately 230 employees.      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     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. (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.      Over 2/3 of annuities are from investmentsthe 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.  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.”  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 . . .” Employee Share Employer Share Disability All General Protective & Employees University Employees 5.0% 5.8% Legislators & Executives 5.1% 9.4% 8.9% 3.9% 3.9% Defined Benefit Plan Defined Contribution Amount of benefit Formula based on salary and Based on contribution, years of service. investment performance of individual account. Duration of benefit Investment Risk Continues for life of annuitant or spouse Ends when individual account is depleted. Employer and employees assume risk. All employee contributions are pooled. Employee assumes all risk. Investment losses result in lower benefits. Coverage Covers most large public employers and majority of Fortune 500 companies. Usually small nonunion employers, or as an addition to a direct benefit plan. Management Typically managed by Typically managed by     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.        Typically a 401-K , 403-B. All risk is assumed by the employee. Individual accts can run out of funds…. Managed by financial services companymuch 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.   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 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)  1. 2. 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    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. 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.  “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.”  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!   “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      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.  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 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. Make it a campaign Raise it at candidate forums, talk shows, issue. blogs, etc. Don’t accept, “The study hasn’t been completed.” Or: There is no bill currently before the legislature. Contact Legislators It really makes a difference! Writing individual letter is best- but not essential. Calls are good. Petitions of constituents are great. Discuss it with your •Assume people co-workers know little (or nothing) about the problem. •Provide facts. •Offer opportunities for advocacy. Keep Informed 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