State Supreme Court Rules Act 11 is Constitution

In a long-anticipated decision, the State Supreme Court Tuesday (June 12, 2001) ruled that the 1999 Wisconsin public employee pension improvement law is constitutional.

The ruling was a victory for the law on all counts. WEAC members and staff worked hard to win passage of the law and have fought through the court system to argue its legal merits.

Key points:

• For most general employees (almost all WEAC members) the formula factor will increase from 1.6% to 1.765% for all service prior to January 1, 2000. This will result in an increase in initial pension calculation for that service of approximately 10%. For service on or after January 1, 2000, the formula factor reverts to 1.6%.
• The 5% earnings cap for money purchase accounts is removed. That cap had applied to all participants hired since January 1, 1982.
• The Variable Fund will now reopen for all participants. The Variable Fund has been closed to new participants since April 30, 1980. All participants will have the opportunity to allocate up to 50% of future contributions to the Variable Fund. Elections made by individuals to designate future contributions to the Variable Fund become effective the following calendar year. Individuals should contact the Department of Employee Trust Funds for information about signing up for the Variable Fund option.
• The death benefit is changed to treat all participants and their chosen beneficiaries equally. The law eliminates the requirement that a beneficiary must be a spouse or dependent child in order to receive a full death benefit.
• A mechanism to reduce past unfunded liabilities is implemented, improving the fund's financial health. Also, the fund will move to a market recognition system, allowing for a more frequent distribution of benefits.

The 110-page court ruling addresses every issue brought in the lawsuit challenging the law and then concludes:

"To sum up, this court concludes that Act 11 is constitutional, having been approved by the requisite number of votes, namely, "a three-fourths vote of all the members elected to both houses of the legislature." The Act does not take the petitioners' property without just compensation, nor does it impair the obligations of their contract with the State of Wisconsin. It does not violate the fundamental principles of Chapter 40 or any right preserved in Wis. Stat. ? 40.19(1). It does not violate trust principles. Rather, it strengthens the hand of the ETF Board. Consequently, the relief requested by petitioners is denied and the injunction issued by this court is lifted."

WEAC President Terry Craney said the long-delayed ruling was well worth the wait.

"The Supreme Court upheld all provisions of the 1999 legislation that increased benefits for current and future retirees," Craney said. "The decision means an approximate 10% increase in benefits for hundreds of thousands of participants in the Wisconsin Retirement System."

Craney said the court agreed with WEAC's position that the law was a legitimate use of state retirement funds and would keep the fund solvent.

"Educators who have dedicated their lives to creating great schools for all children will now see higher annuities," Craney said. "WEAC believes that since members contributed to the health of the system over the years, they should share in the high investment returns."

The legislation was signed into law in December of 1999, but two employee groups challenged it, and the Supreme Court issued an injunction enjoining all provisions of the law until the legal challenge was resolved.

"This is the largest retirement enhancement for public employees in Wisconsin history," WEAC lead attorney Tony Sheehan said. "The court agreed that public employees had a right to an increase in their retirement benefits which resulted from the market value increases earned by the system during the 1990s."

WEAC Executive Director Michael A. Butera congratulated Sheehan and the entire WEAC legal staff for their exceptional work that helped lead to the successful court ruling. Sheehan said other WEAC legal staff who deserve special credit include Lucy Brown, Mike Van Sistine, Deb Meylor and Bruce Meredith.

Resource page on 1999 pension law
State Supreme Court decision