Contributions paid by Wisconsin Retirement System employees and employers into the system will increase slightly next year. The rate changes, effective January 1, 2017, were recommended by the WRS consulting actuary and approved by the Employee Trust Funds Board last week. Total WRS contribution rates, along with employee and employer shares, are indicated in the table below.This means that an everyday state worker like me is going to pay 6.8% next year into my pension vs the 6.6% I’m paying now. In the big picture, not a big move, and 6.8% is the same as what I paid in 2015. But what’s a bit worrisome is that this increased contribution is mostly based on the stock market flatlining in 2015 after a significant runup in the past few years. Since the market hasn’t gained much in 2016 either (the S&P is up barely more than 2.5% for the year, below the 7% it needs to grow to stay on track), it seems possible that more money might be going out of the pocket of myself and many other state employees in 2018 if this keeps. And that’s before any tricks come around from our Fair Governor to handle his budget deficits (assuming he’s still around next year).
The 2017 rate increases are primarily due to higher life expectancies and lower-than-expected trust fund investment performance. This is a part of the unique “shared risk” design of the WRS, which includes 1) employee contributions, 2) employer contributions and 3) investment earnings. Together these funds must be sufficient to meet the present and long-term retirement benefit commitments of the system. Investment income contributes approximately 75% of WRS funding requirements.
The ETF’s notice also made me want to go down the rabbit hole of looking into where the funds come from, and where we stand on that 5 years after Act 10. The first source I looked at was the Legislative Fiscal Bureau’s paper on the Wisconsin Retirement System. You can see how 2011’s Act 10 funneled some of the contributions that went into these accounts from the general taxpayer, and took it from the workers themselves. The LFB’s paper goes up to 2013, which works because most areas were under Act 10 provisions by then.
Retirement contributions for state employees
2009 $1.25 million employee, $415.57 million employer
2010 $3.60 million employee, $444.36 million employer
2011 $81.96 million employee, $386.07 million employer
2012 $213.45 million employee, $263.73 million employer
2013 $249.68 million employee, $305.66 million employer
CHANGE 2010 VS 2013
Employee +$246.08 million
Employer -$138.70 million
Retirement contributions for local employees
2009 $6.71 million employee, $1,003.56 million employer
2010 $8.10 million employee, $1,063.11 million employer
2011 $135.26 million employee, $961.14 million employer
2012 $398.21 million employee, $697.44 million employer
2013 $511.33 million employee, $704.48 million employer
CHANGE 2010 vs 2013
Employee +$504.62 million
Employer -$358.63 million
For the record, I’m not complaining as much that me as a public employee has had to pay more. Don’t forget, AFSCME's last-ditch offer in 2011 was to take the hit and agree the same amount of payments as in Act 10, as long as collective bargaining rights were maintained (even the pro-Walker Wisconsin Politi-"fact" admits this). I have a bigger problem with the amounts of contributions being mandated with no ability for negotiations to change it. And my biggest issue is the fact that Walker and WisGOP didn’t use the savings from Act 10 to continue investments or improve services, but instead cut aids to school districts and local governments, and used the proceeds to give tax cuts to the rich and the corporate. Which helps explain why we continue to have budget difficulties 5 ½ years later despite this decrease in retirement contributions from the state.
Also notice that the employer contribution figure was starting to go back up again in 2013, after the Act 10 bomb had been dropped, as the required contributions grew from 5.9% to 6.65% for both employee and employer. And the problem with any increased retirement contributions in 2017 is that there is only an additional $18.6 million in General Fund money and $37.2 million overall that’s set aside for all benefit and salary increases in the 2016-17 budget, and this boost in costs would be a part of that (and/or taken out of the budgets for all state agencies). Also, the Legislative Fiscal Bureau says the 2015-17 budget made some assumptions with “magic savings” that may not happen.
The final GPR and all funds compensation reserve amounts under AB 21/SB 21 identified above are net of the following recommendations of the Governor: (a) -$4,183,600 GPR in 2015-16 (-$9,194,700 all funds), and -$8,367,000 GPR in 2016-17 (-$18,389,000 all funds) associated with a proposal to permit state employees to opt-out of state health insurance coverage for a $2,000 annual payment; and (b) -$8,200,000 GPR in 2015-16 (-$18,200,000 all funds), and -$16,400,000 GPR in 2016-17 (-$36,400,000 all funds) associated with unspecified changes to the state group health insurance program.Note the $12.5 million in extra savings projected due to that new “opt-out program”? According to the February 2016 Group Insurance Board meeting, it didn’t get too many takers.
Employees eligible for a state contribution for health insurance could be eligible to receive a $2,000 annual stipend if they were insured in 2015 and actively opted out of state group health insurance coverage for 2016. Analysis of ETF data indicates that 423 applications were submitted by state employees who had coverage through 2015 to cancel coverage in 2016 for reasons other than death, retirement, or termination of employment. This includes 21 graduate assistants. Final determination of eligibility for the opt-out benefit for these employees would be determined by the employer.Those 423 members opting out would be just over 1% of all potential employees who had health insurance in 2015, and would be an additional group eligible for the $2,000 bonus. If you go to the budget paper on the Opt-Out proposal, here is why that 1% is an important number to know.
A key assumption underlying Deloitte's report regarding the possible costs or savings associated with annual opt-out payments was the percentage of additional state employees who might elect to opt-out. In regards to this key assumption, Deloitte indicated that, "There is little reliable data to validate the 1-5% opt out assumption and it is possible that there would be more opt outs." Deloitte indicated that if only an additional 1% of state employees opt-out of receiving state health insurance, the proposal would increase state costs between $1.6 million and $3.3 million annually. If, however, an additional 5% of state employees would opt-out of receiving state health insurance annually, the proposal could save the state from $9.7 million to $18.4 million annually. The administration has assumed in the budget that this proposal will save the state $18.4 million annuallyThen a further study showed that the $18.4 million the Walker folks counted on was too high, hence the number being reduced to $12.5 million. However, the small enrollment in the opt-out means that costs associated with the opt-out would be around $14-16 million higher than what was budgeted, with costs actually going up compared to what would happen if there was no opt-out at all. That's a little different than the $18 mil in savings that the Walker folks anticipated from this move in early 2015. Ruh roh.
Now look, there are plenty of other variables that come in on health insurance costs over the course of a 2-year budget, and there may well be items that offset these increased costs that make the health insurance payments OK. But it’s worth looking into this in advance of next week’s Group Insurance Board meeting, when more talk about the 2017 health plan