Sen. Stroebel Talks about Retirement Benefits

During the 2015-16 session, Sen. Duey Stroebel introduced two bills addressing the Wisconsin Retirement System (WRS). The first bill, SB-328 (AB-398 Rep. August), revised the methodology for determining an annuity rate for members of the WRS. Currently, the rate is determined by the final average earnings calculated on the highest three years of salary, the bill would have changed it to five years of salary. According to the 2015 co-sponsorship memo, the bill improves the solvency of the WRS by:

  • Giving an annuitant a pension that is representative of an annuitant’s contributions, and
  • Making it more difficult to “circumvent the actuarial foundations of the system.”

The bill was to be applicable five years after publication, “meaning no current employee near retirement would be affected by the change.”  The bill was introduced, but no hearings were held in the Senate or the Assembly.

The second bill, SB-329 (AB-397 Rep. Sanfelippo), increased the minimum retirement age under the WRS by two years. Currently, the minimum age for retirement under the WRS is 55 for most participants, and 50 for protective occupation participants. The bill would have raised the minimum retirement age two years, meaning 57 for most participants and 52 for protective occupation participants. According to the 2015 co-sponsorship memo, the “reduction in pension benefits one receives from an early retirement does not fully offset the actuarial hit the WRS takes when an employee retires early. The bill enhances the solvency of WRS and starts to equalize the public and private sectors by encouraging employees not to retire at an age not possible in the private sector.” The bill was introduced, but no hearings were held in the Senate or the Assembly.

An actuarial was completed for Legislative Council by Gabriel Roeder Smith & Company in October 2016. The actuarial includes an analysis of:

  • SB-328 Annuity based on Final Average Earnings (FAE) using the five highest years of earnings preceding retirement effective after five years of publication.
  • SB-328 with amendment LRBs0175: Annuity based on FAE using the five highest years for participants hired after the effective date.
  • SB-329: Increased early retirement rate by two years for those members currently under age 40 at the time of publication, and for all members hired after the effective date.
  • SB-329: Increased early retirement rate by two years for those hired after the effective date.
  • SB-329 with amendment LRBa2446: Increased early retirement rate by two years for protective occupation participants, and by five years for participants under the age of 40 and for all members hired after the effective date.
  • SB-329 with amendment LRBa1224: Increased early retirement age by two years for protective occupation participants, and by five years for participants hired after the effective date.

The actuarial assumed a rate of interest of 7.2%, payroll was assumed to increase 3.2% a year, and used a frozen entry as cost method.

The actuarial study showed that the annual earnings for general participants in the WRS:

  • General participants – $11,785.7 million
  • Executive/Elected – $108 million
  • Protective Occupation with Social Security – $1,170.9 million
  • Protective Occupation without Social Security – $208.5 million

Multiplying out the actuarial projected savings by SB-328 and SB-329, using the 55 to 60 retirement age, the savings can be expected to be:

  • General participants – $77.8 million
  • Executive/Elected – $0.7 million
  • Protective Occupation with Social Security – $12.1 million
  • Protective Occupation without Social Security – $2.7 million
  • Total projected savings $93.3 million.

In an interview with The Wheeler Report, Sen. Stroebel said he will be re-introducing the bills now that he has the actuarial studies. With regards to SB-328, Stroebel said the situation is being gamed. Stroebel said when someone spends 25 years paying into the retirement at a specific level, then there is a three-year change it affects the soundness of the actuarial system.  Stroebel said it isn’t fair and equitable.  With regards to SB-329, Stroebel said early retirement isn’t actuarially funded and every time someone takes early retirement there is a “hit to the system.”  Stroebel highlighted that the actuarial was done at a 7.2% return, but if that number were to drop that could significantly impact the retirement fund.  Stroebel said the bills are aimed at making small policy changes to make sure the fund is solvent, rather than having to make big changes should there be a change in the fund. Stroebel emphasized that in 2001 total employee contribution rates were 9% and in 2016 they are 13.6%.  Stroebel said that’s a significant change and it is eroding what employees are able to take home in pay. Stroebel said this is a disservice to the employees, that the state relies so heavily on the pension instead of on pay.

When asked about opposition to the bills, Stroebel said ‘change.’ Stroebel emphasized that in the past the courts have said that the state can make changes to benefits, but circumstances must be considered.  Stroebel highlighted the early retirement bill would not affect anyone who is older than 40; meaning there would be 15 years before the state would see the changes. Stroebel said the 3-5 year change would be delayed five years to minimize the impact to current employees.

Stroebel said in 2003 the state borrowed more than $700 million to backfill the pension fund, and the state is still paying those debts with GPR.  Stroebel said, referring to an LFB memo, that the payment on that for the 2015-17 budget would have been enough to cover the UW budget cuts.

Stroebel said he thinks the WRS is a great system, but he thinks the state should pay attention to the rate of return and that in the past the state had to borrow to backfill the system which is currently being repaid with GPR.

Stroebel said his bills are about being fair and equitable to everyone, the employees, the retirees, and the taxpayers of Wisconsin.