Wednesday, January 15, 2014

Wisconsin pension solvency demands vigilance

Another piece of information came out this week that showed Wisconsin's public employee pension system is one that every other state can (and probably does) envy. The State of Wisconsin Investment Board (SWIB) reported strong returns for its pension fund in 2013, reflecting the booming stock market, and a continued successful strategy.
The Core Fund, the larger of the two WRS [Wisconsin Retirement System] trust funds with diversified holdings in domestic and international stocks, bonds, loans, real estate and private equity, ended the year with a preliminary return of 13.5 percent. The preliminary market value of the Core Fund on December 31, 2013, was approximately $86.5 billion. The Variable Fund, an optional, U.S. and international stock fund, ended the year with a preliminary return of 29.0 percent. The Variable Fund’s preliminary market value was approximately $7.2 billion on December 31, 2013.

SWIB’s U.S stock investments, which saw a return of 35.4 percent, had a significant effect on performance. The Variable Fund has 70 percent invested in the U.S. stock market and the remaining 30 percent of the fund is in international stocks that earned 13.9 percent. The Core Fund is 50 percent stocks split almost evenly between international and U.S. The Core Fund includes other types of investments used to help provide diversification.

Both funds surpassed their preliminary one-year benchmarks of 12.9 percent and 28.0 percent, respectively.
This keeps the pension fund at its 100% fully-funded status, and with 2013 ending, there was a second assist to the WRS fund, because of the "smoothing period." The smoothing actuarily averages funds over a 5-year period to keep the fund amounts from jumping around too much year-to-year, and causing large changes in taxpayer and employee contributions, which would create unnecessary stress and uncertainty. With the WRS fund having a 5-year smoothing period, it means the stock market crash of 2008 is finally off the books, and the 5 years of gains under President Obama are now the only stretch recognized. This should mean help for retirees, current public workers and other taxpayers going forward.
“This is great news for WRS members and all of Wisconsin,” said Robert J. Conlin, secretary of the Department of Employee Trust Funds. “These strong returns generated by SWIB, coupled with the fact that all of the losses from the 2008 financial crisis have been fully recognized, should mean a pay increase for annuitants in the spring of 2014. That’s money that will be spent in nearly every community in this state. It will also mean a reduction in contribution rates in 2015, which should help public employees and government employers throughout the state.”
The reduced contribution rates means that less taxpayer and state employee funding will be needed for 2015, helping the bottom lines for both the state budget and public employees, since they now split those contributions 50-50 (thanks to Act 10).

The concern you should have is that the full funding and reduced contributions for the pension fund makes for a juicy target for Republican officials for stealing in the name of more tax cuts. State Rep. Duey Stroebel said as much after the report came out.
“Secretary Conlin has already stated these great returns should mean increases in pension payouts. He declared, ‘That’s money that will be spent in nearly every community in this state.’ I encourage Secretary Conlin and the ETF Board to also focus on relieving the recent spike in contribution rates, not just raising annuitant payments above the core level. These markedly higher pension contribution rates to maintain solvency are paid by current public employees and by every Wisconsinite in the form of higher taxes. WRS contributions are taxed out of the private sector. That’s money that will not be spent in every community in this state.”
Apparently public employees like me who are double-paying into this system (both as an employee and taxpayer) aren't so much of a concern for the guy from the 262. Thanks, Duey.

We know that Walker had his eyes on messing with the WRS previously, before a state report in 2012 told him and everyone else in the state just how stupid an idea that was (Mike Ivey has a good rundown of this today in the Cap Times). But one thing we've learned with these guys is that they and their puppetmasters don't give up, regardless of what reality tells them. So the excess pension funds could be the real target, both to fill budget holes and offer up "tax relief" in the short term, and possibly depleting the fund to endanger it with the next economic downturn. At which time the Kochs, Bradleys, and their GOP front men can claim a "Detroit-style fiscal crisis," leading to radical, pro-corporate changes, with the premise being as false as the one which led to Act 10.

So as Gov. Walker tries to claim some sort of "upside revenue surprise" will give room for more tax cuts in one hand, take a look at the WRS pension fund that he may be reaching for with the other hand. Keep watching the WRS, cause you bet these guys would love to take some of it for them and their buddies if they can.

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