Pension Bill Passes Legislature

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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.

• 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