Pension
bill (AB 495) passes Legislature
Actuarial report released
The highly anticipated actuarial study on the 1999 pension improvement
bill (AB 495) was released Monday (November 8, 1999). WEAC and the WFT
have reviewed the report and believe it indicates AB 495 will not have
any adverse effects on employer contribution rates.
Background:
1999 Assembly Bill 495 is the bill that provides a 10% increase in pension
for past service and makes various other improvements in the Wisconsin
Retirement System. The bill passed the Assembly by a vote of 79-20 and
the Senate by a vote of 23-10.
Talking Points:
- We believe the pension improvements are in the best interest of
the participants and annuitants, and we believe it to be good public
policy and should become law.
- The fact that the ETF Board "shall retain the authority to maintain
proper actuarial funding of the Wisconsin retirement system" reassures
us that the integrity of the system will be maintained under AB 495.
The bill:
- Increases the formula factor for services through December 31, 1999,
from 1.6% to 1.765%. For educators, that is an increase of more than
10% in initial pension calculations.
- Lifts the 5% earnings cap for money purchase calculations that have
penalized all participants hired since January 1, 1982. This will
allow current participants to earn more in their retirement accounts
based on market performance.
- Amends the death benefit so as to treat all participants and their
chosen beneficiaries equally.
- The bill passed the Legislatiure on Wednesday, October 6, 1999.
The bill passed the Assembly by a vote of 79-20 and the Senate by
a vote of 23-10.
- Reopens the variable annuity option, which has been closed to new
hires since April 30, 1980. This is a pension option that is almost
fully invested in the stock market.
WEAC was a key player in those negotiations that made the bill possible.
Former WEAC Executive Director Don Krahn, the WEAC Government Relations
Division, the WEAC Legal Division, the Wisconsin Federation of Teachers
and other public sector employee unions were instrumental in negotiating
the package. WEAC and the WFT strongly favor passage of the bill.
A complete version of AB 495 is available on the Internet at: http://www.legis.state.wi.us/1999/data/AB495.pdf
(Note you need Adobe Acrobat Reader to view the Internet version of
the bill).
Extended Summary of the bill:
Benefit improvements under the WRS
This bill increases the percentage multiplier for all classes of participants
in the WRS for creditable service that is performed before January 1,
2000.
- Protective participants covered by Social Security, elected officials
and executive employees = 2.165%
- Protective occupation participants not covered by Social Security
= 2.665%
- All other participants in the WRS (educators) = 1.765%
The increase first applies to the calculation of retirement benefits
for individuals who are participating in the WRS on January 1, 2000.
For all creditable service that is performed on or after January 1,
2000, however, the bill provides that the current law percentage multipliers
will apply.
Variable annuities:
- This bill permits any participant in the WRS who is a participating
employe on January 1, 2001, to participate in the variable annuity
program.
Increase in the maximum amount of initial retirement annuity:
- This bill increases the amount to 70% for participants who are participating
employes on the effective date of the bill. Note: current law is an
amount equal to 65% of the participant's final average earnings.
Calculation of unfunded prior service liability balances:
- This bill authorizes the Department of Employee Trust Funds to adjust
the unfunded prior service liability balance of the WRS and of each
employer to reflect any changes in certain assumptions used to value
the liabilities of the WRS if the actuary recommends and the employe
trust funds board approves the changes or if otherwise provided by
law.
Accelerated distribution of moneys from the transaction amortization
account of the fixed retirement investment trust:
- This bill provides that on December 31, 1999, $4,000,000,000 is
to be distributed from the TAA to the reserves and accounts in the
FRIT in an amount equal to a percentage of the total distribution
determined by dividing each reserve's and account's balance on the
prior January 1 by the total balance of the FRIT on the prior January
1.
Establishment of employer required contribution credits:
- Under the bill, $200,000,000 of the increase in the fixed employer
accumulation reserve that results form the distribution from the TAA
will be used to establish contribution credits for payments for employers
that have unfunded prior service liability under the WRS.
- For employers who do not have unfunded prior service liability,
the credits will be used to make payments for their required employer
contributions under the WRS.
- During the period in which the credits are used, the employers that
have unfunded prior service liability will not be required to make
payments for unfunded prior service liability and those employers
that do not have unfunded prior service liability will not be required
to make employer required contributions.
Elimination of the transaction amortization account and creation of
market recognition account:
- This bill eliminates the TAA over a five-year period and creates,
in its place, a market recognition account (MRA) that is to be used
for distributing the total market value investment return earned by
the FRIT.
Determination of certain actuarial assumptions for certain purposes
under the WRS:
- This bill increases the actuarial assumption for across-the-board
salary increases for the purposes of valuing the liabilities of the
WRS from 3.2% less than the assumed rate to 3.4% less than the assumed
rate.
Interest crediting on employe required contribution accumulations:
Under current law, for those participants in the WRS who are hired
on or after January 1, 1982, interest is credited annually to their
employe required contribution accumulation in the fixed annuity division
of the employe trust fund at the assumed benefit rate of 5%.
- This bill provides that the interest on required contribution accumulations
for participants who are participating employes in the WRS on the
effective date of the bill is to be credited at the effective rate.
Death benefits under the WRS:
- This bill eliminates the requirement that the beneficiary be a dependent
in order to receive the death benefit that equals the present value
of a life annuity in the form of a joint survivor annuity. Instead,
the bill requires that the beneficiary must be a natural person or
a trust in which a natural person has a beneficial interest. In addition,
for a participating employe who has not attained age 55, and any protective
occupation participant who has not attained age 50, the bill increases
the death benefit for such a participating employe to an amount equal
to the sum of the employe additional contribution and twice the employe
required contribution accumulations, including any interest credited
to the accumulations.
Purchase of creditable service by legislators and legislative service
agency employes:
- This bill permits any person who is a participating employe in the
WRS to purchase creditable service under the WRS for any service not
previously credited that was performed by the person as a member or
employe of the legislature or employe of a legislative service agency.
Last updated December 2, 1999
