David Michael Miller
It was back in November 2012 that Gov. Scott Walker’s Wisconsin Economic Development Corporation sent a letter to the State of Wisconsin Investment Board that “recommended” it loan $200 million to the WEDC.
That’s rather alarming, given that the WEDC, the controversial economic development agency, has been plagued by poor performance and bad management. It was created by Walker, and he was then its board chairman, so it’s a safe assumption he thought it a good idea to grab money from the Investment Board, which manages the pension fund serving some 426,000 state and local government workers and retirees. The result could have reduced the fund’s holdings and negatively affected retirees’ pensions. Fortunately the Investment Board rejected the request, noting its fiduciary duty to make sure any investment doesn’t have “an adverse effect on its assets.”
This is not the only instance of Walker trying to mess with workers’ pensions. He has suggested the state should change to a 401(k) system like most private companies now have. Act 10, his signature law curtailing public employee unions, also commissioned a study to compare the state’s “defined benefits” plan for employees to an optional “defined contribution” plan like a 401(k).
The study found Wisconsin has “one of the lowest pension system costs for taxpayers in the nation” and “contains many pension policy best practices” that “minimize the risks for taxpayers.” The study also found Wisconsin’s pension benefit, where employees earn 1.6% of their final average salary for each year worked, “is lower than the average 1.95% multiplier” in other public retirement systems nationally.
As for a 401(k)-type plan, an actuarial analysis in the study found that to provide a comparable benefit to employees, it “would require higher contributions than employers and employees currently pay.” The study noted “numerous” past studies indicating that a voluntary plan like a 401(k) results in many employees not signing up, reducing the growth of the retirement fund, both because of reduced economies of scale from a smaller fund, and because individual employees make poorer investment decisions than professional money managers like those at the state Investment Board.
The study echoed an earlier report by the Pew Center on the States, which found Wisconsin’s pension fund was the strongest among all 50 states, with enough money to cover 100% of current liabilities, compared to an average of 75% for other state pension systems.
Pew researcher David Draine noted that Wisconsin’s fund was unique nationally because employees share in the risk: When investment returns in the pension fund rise, so do pension payments. But when investments suffer losses, payments to retirees can decline. “That helps them manage risk a bit better,” Draine told the Milwaukee Journal Sentinel. “It’s the only state that does that.”
In reaction to the state study, Walker declared it “confirms that both taxpayers and pensioners are getting a great deal with the WRS.”
Yet Walker and Republican legislators still want to mess with the system. Which brings us to a recently proposed budget amendment that would have overhauled the Joint Survey Committee on Retirement Systems, created in 1947 by Republican leaders then in control of state government, which has helped safeguard state pensions for 68 years.
Under the law, the committee has 10 members, including six legislators and four experts: the secretary of the Employment Trust Fund (the state retirement fund), a public appointee who typically has expertise in this field, an assistant attorney general typically well-versed in pension laws, and the state commissioner of insurance or an experienced actuary designated by the commissioner.
For more than six decades this bipartisan watchdog committee has helped assure Wisconsin’s pension system is the nation’s strongest — through “a lot of input from a lot of people with expertise in the system,” says David Bennett, executive director of the Wisconsin Retired Educators Association.
But the budget proposal would have dropped all the experts from the committee and stuffed it with 10 members of the Legislature structured like other standing committees, meaning it would have a two-thirds majority of Republicans. Bennett calls it “a very dangerous” proposal that would “upset the balance of the retirement system” and create opportunities for mischief. “Public oversight is really important to the system.”
Bennett’s group is one of many representing retired public employees, none of whom were consulted about this change. “We were all blindsided,” he says. “This first came up [in the budget] on the night before the Fourth of July weekend. Draw your own conclusions about the timing of that.”
Yet Bennett’s group and others quickly reacted, successfully pressuring legislators to drop the budget provision.
To date, no legislator has taken credit for the proposal or explained its rationale. “They’re all ducking for cover,” Bennett notes.
But it’s unlikely the provision was added to the budget without the okay from top Republican leaders: Assembly Speaker Robin Vos and Senate Majority Leader Scott Fitzgerald. And it’s unlikely it wasn’t discussed with Walker, given the powerful partial veto power Wisconsin’s governor has.
All of which suggests Republicans have designs on changing the nation’s most successful pension fund, and may make future attempts to do so. Don’t say you weren’t warned.
Bruce Murphy is editor of UrbanMilwaukee.com.
