The WRS Works for Wisconsin: FAQ
The Wisconsin Retirement System (WRS) is a nationally recognized pension plan that provides more than 572,000 of Wisconsin’s active and retired school teachers, police officers, firefighters and other public workers with modest financial security in their retirement years. The State of Wisconsin Investment Board (SWIB) invests substantial WRS retirement funds in Wisconsin businesses thereby also supporting private sector job growth.
If the WRS provides so many benefits to Wisconsin, why is it being studied?
Despite WRS’s multiple benefits, the state budget includes a component that creates a committee to study changing the structure and benefits of the WRS. The study committee is specifically looking at defined contribution plans like 401(k) and a proposal that would allow employees to “opt out” of WRS. Privatization doesn’t work in our schools – and it won’t work for our retirement investments.
Does changing the WRS jeopardize Wisconsin’s future?
Yes. Defined contribution plans like 401(k)s come with higher risks and costs for workers; a switch to these types of plans would destabilize the retirement security of current and future workers. Research shows that individuals who save on their own (vs. a defined benefit plan) have dramatically less for retirement, pay heftier fees, and get lower investment returns. Opt-out is not a genuine option for Wisconsin; it’s a ploy that will result in economic insecurity for those who opt out. If large numbers of employees leave the current system, it will destabilize the retirement funds of all active employees and current retirees.
What are some basic facts about the WRS?
WRS is a defined benefit plan that provides modest financial security to public employees and their beneficiaries in old age. The Department of Employee Trust Funds (ETF) administers WRS benefits, and the assets of the trust are invested by professionals at the State of Wisconsin Investment Board (SWIB). The WRS is unique because public employers, employees and retirees share in the risks and rewards of investment earnings or losses. Taxpayers are not solely at risk if there are investment losses.
What is the difference in retirement plans?
Defined contribution plans are 401(k) style plans that require employees to manage their own accounts. Employees must select from a limited number of investment options offered by the employer and determine how they want to invest their money. Often these accounts are held by financial service providers and are subject to fees and administrative charges. There is no pension, but rather a sum of money that the employee has been able to save by the time of retirement. Defined benefit plans provide a formula-based retirement, where an employee’s years of service and final average income yield a monthly stipend. Defined benefit plans like WRS are professionally managed, where employee and employer contributions are invested by specialists. Because of the large pool of participants, new money is always coming into the system, unlike a 401(k). These factors help defined benefit plans generate consistently higher returns on their investments, which translates into more security for annuitants.
What are the advantages of a defined benefit plan?
All working Americans deserve a secure retirement. Defined benefit plans are a proven tool for retaining high-quality staff in our schools and they are less expensive for employers to administer. Defined benefit plans earn higher investment returns, helping workers and taxpayers alike. Defined benefit plans provide working men and women with more secure and predictable pensions than other types of retirement plans. Economically secure retirees support local communities and help families who might otherwise have to care for seniors living in poverty. The National Institute on Retirement Security found that among older households lacking pension incomes, rates of poverty were six times higher than those with pension incomes. The real retirement crisis in American today is not with public pensions but with the large number of working Americans who do have retirement security.
Would it cost the state more to run two retirement systems?
Yes. Setting up and implementing dramatic changes in the retirement system would be costly and complex. Because of higher costs, Nebraska and West Virginia, which moved to defined contribution plans, actually are moving back to defined benefit plans. A recent study found that the cost to deliver the same retirement income to a group of employees is 46% lower in a typical defined benefit plan than in a defined contribution plan. This is because defined benefit plans have more diverse investment portfolios providing greater returns, and have new money coming into the system at all times allowing for investment adjustments. The National Institute for Retirement Security found that defined benefit plans are more cost effective for taxpayers and better meet the needs of working people.
How does the WRS benefit Wisconsin?
In 2010, 155,755 annuities were paid for a total of $3.9 billion. Nearly 90% of retirees continue to live in the Wisconsin after retirement – meaning more than $3 billion is contributed annually to Wisconsin’s economy through annuitants. Over five years ending June 30, 2010, SWIB invested nearly $3.7 billion in stocks and bonds in companies headquartered or with a significant presence in the state. Every dollar in pension funding generates economic output as those dollars get spent. A national study found that public employees pump $358 billion annually into local economies, contributing to millions of jobs. Economically secure retirees provide stability to state and local economies.
Is the WRS in financial trouble?
No. The WRS is among the best run pension systems in the country. Benefits are reasonable and funds are managed responsibly. A 2010 Pew Report called the WRS “an influential leader in managing its long term liabilities for both pension and retiree health care.” A 2012 Pew report revealed the same solid performance.