In the Orwellian-titled "State Budget Solutions" webpage, there is story after story claiming a crisis in pension funding, and the need for "reform." One of these stories claimed that the Wisconsin Retirement System (WRS), which handles most Wisconsin public employee pensions, were underfunded by nearly $60 billion dollars, and were only 57% funded. Also interesting is that the 57% figure was still the best-funded system in the country, according to State Budget Solutions (or SBS, as I'll call them)So how did the SBS people come up with this figure?
Figures were drawn from state Fiscal Year 2012 Comprehensive Annual Financial Reports, as well as the Comprehensive Annual Financial Reports and actuarial valuations published by individual plans. In each case, figures were from the most up-to-date valuation available at the time of research. Plans were compiled based on the United States Census Bureau's Annual Survey of Public Pensions and state-level financial reports. Plan liabilities were discounted according to the 15-year Treasury bond yield as of August 21, 2013. That rate was 3.225 percent.That part in bold is key, because the Wisconsin Department of Employee Trust Funds (ETF) took a look at that report, and noticed that it was heavily flawed.
At issue is the rate of return to be used in determining the present value of those future obligations. In general, the argument for using a low rate of return, like the current yield on Treasury bonds, to measure the present value of those future benefits is based on the theory that a guaranteed, low-risk rate accurately reflects the guaranteed nature of the future benefits. Not only has the approach been rejected by the Government Accounting Standards Board (GASB), the unique benefit features of the WRS make the use of such a low rate of return inappropriate. For example, under the WRS, the future accrual of benefits for active employees is not guaranteed. Benefits to be earned in the future can and have been changed by the legislature from time to time. In addition, pension benefits for active employees and retirees are linked directly to investment performance and change based upon that performance. Effectively, the report assumes that employers bear all the risk in the WRS and that the benefits of active and retired participants and beneficiaries are immune to those risks. It is well known that the WRS does not operate that way. Indeed, benefits payable to retirees have been cut by more than $4 billion over the last 5 years in response to the financial crisis of 2008.So the SBS people are putting out numbers that are simply not relevant to how the WRS operates. It also is worthy of noting the strong performance of the administration of the State of Wisconsin Investment Board (SWIB), who chooses the investments for the WRS, as the higher 8% rate of return includes the stock market crash from 2007-2009.
Furthermore, contrary to the report’s assertion that the WRS uses a single 7.2% rate of return, the WRS in fact uses a far more conservative 5.0% rate for retired participants and for active and inactive participants following retirement. The 7.2% rate applies only to active participants prior to their retirement. This is approximately equivalent to using a 5.5% rate of return for all participants at all stages of life. The diversified and balanced investment portfolio of the WRS has met and is reasonably expected to continue to meet or exceed that rate over the long-term. For example, the actual rate of return for the WRS over the last 10 years is 8% through July 31, 2013. Using these more appropriate return rates for the WRS helps ensure adequate funding for future benefits at a reasonable cost today.
With the WRS's generally-accepted assumptions put into place, Wisconsin pensions are on firm ground. And it's not just the ETF saying that, as Wall Street analyst Morningstar put out a report today mentioning that Wisconsin's public employee pension system was one to be envied.
Several states have very strong pension systems. Six states have funded levels of more than 90%, and seven have [unfunded liabilities] of less than $100 per capita. Wisconsin remains the strongest system, with a 99.9% funded ratio and [an unfunded liability] of $18 per capita.So why is there such a difference from what the SBS people are saying? Take a look the SBS "Partners" at the bottom of the page, and then cross-check them with the Center for Media and Democracy's Sourcewatch, and you get the answer.
The State Policy Network (SPN)
The Franklin Center for Public Integrity (Integrity! That's the joke son!)
The Freedom Foundation
George Mason University's Mercatus Center
And yes, ALEC
What do they have in common? All part of the "research organizations" that have received heavy backing from foundations headed by Charles and David Koch and Harry and Lynde Bradley. Yep, SBS is nothing more than a right-wing Koch/Bradley propaganda page, and like most Koch/Bradley outfits, produce nothing but lies that are thrown out to try to deceive a lazy, unsuspecting media.
This clip from Robert Greenwald's "Koch Brothers Exposed" cannot be played enough. It shows similar lies that Koch groups and the right-wing noise machine have said about Social Security, with narration from the amazing U.S. Sen. Bernie Sanders.
Regardless of what Paul Ryan and other Koch whores may say, Wisconsin's public employee pensions system remains the model that other states should copy, and has no need to be touched or modified in any way. We know the greedheads at the Koch and Bradley Foundations will never be satisfied until they grab every last dollar from a worker to put into their pockets, and the pockets of paid propagandists like the "State Budget Solutions" network. Which is why we need to call out anything these fake front groups that tries to pass off souped up (S)BS like this as fact.