WISCONSIN RETIREES FACING REDUCED PENSIONS

Poor performance for public pensions could cost taxpayers big-time

http://www.wisconsinreporter.com/poor-performance-for-public-pensions-could-cost-taxpayers-big-time
Wisconsin Reporter – Ryan Ekvall – 7/24/2012

If the lower than assumed investment returns hold until the end of the 2012 calendar year, WRS will pay out smaller pension checks paid to retirees so that it doesn’t fall below established funding ratios.

Beginning May 1, 2012, for example, 96,000 pensioners took a 7 percent decrease in their pension checks due to the fund’s actuarial loss in 2011.

The Department of Employee Trust Funds changed the assumed rate of return to 7.2 percent, from 7.8 percent, in March 2011. The fund’s five-year return on investment is 2.1 percent.

Economists in the pension world say a public pension fund’s assumed rate of return should reflect the guaranteed nature of pension benefits. That would require public pension operators to assume a rate more in line with a long-term U.S. Treasury bond, currently less than 3 percent.

Moody’s Investor Services, the global credit rating agency, recently proposed valuing public pension funds like their private-sector counterparts, which would make the rate equal to that of a high grade corporate bond — currently 5.5 percent.

Using those more conservative rates of return, WRS is underfunded between $30 and $60 billion. It is nearly fully funded using looser pension accounting standards.

The Badger State’s public pension system is viewed as a model of high-performance compared to many states with massive unfunded liabilities. Those states would look much worse if examined under market-value standards.

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