New pension study finds Wisconsin’s funds in good shape

A nationwide look at public pension systems shows a widening gap between retirement benefits owed and the amount of money states have on hand to pay those benefits. Wisconsin is the only state system that is fully funded.

A report by the Pew Center on the States says 12 years ago, more than half the states had fully-funded pension systems. In 2010, only Wisconsin kept that status. Robert Marchant is deputy secretary of Employee Trust Funds. He says some states with pension troubles are considering features of Wisconsin’s system: “We don’t have guaranteed cost-of-living increases. In fact, we’ve got the opposite: … the retirees share in investment performance when it’s going well, and then they also share the pain when the investments are underperforming.”

The Pew Center rated Wisconsin and 10 other states as “solid performers” in managing pension obligations. But Jason Richwine from the Heritage Foundation claims Wisconsin’s system isn’t truly fully funded. As a guest on The Joy Cardin Show, Richwine says anticipated returns on diversified investments can fall short, “and therefore taxpayers will be on the hook. I think what has to happen is that government actuaries have to follow the advice of virtually every financial economist and use risk-free discounting.”

Richwine suggests that states need to make contribution calculations based on safe, low risk investments like government bonds. But Marchant says doing that might bring down the Wisconsin retirement system to 50 percent, instead of fully funded: “The actuaries believe that if we use a risk-free rate of return it would lead to more volatility and liabilities in contribution rates.”

Gov. Walker’s budget required a study of 401(k) defined contribution plans for public workers. That study is due at the end of the month.

(Read the full report at the Pew Center website, and the specific report on Wisconsin’s performance.)