Dear Wisconsin Legislators: We Don't Have a Pension Problem. Please Stop Trying to "Fix" It.

pension

With Governor Walker suspending his presidential campaign, many of us in Wisconsin have been asking ourselves, what will be next on his agenda?  My guess?  Messing with public employee retirement and pensions.  According to Molly Beck, “Republican lawmakers are laying the groundwork for changes to state workers’ pensions that could reduce the monthly payouts and raise the age at which they could retire.  One bill expected to be introduced this month would change the way pension payments are calculated for state workers in five years — payments would be determined by averaging workers’ top five years of pay instead of the top three.  Under a second bill, the minimum age at which a state worker currently under the age of 40 could retire would be 57 instead of 55. Public safety workers could retire at 52 instead of 50.  The measures are sponsored by Sen. Duey Stroebel, R-Saukville, who said both moves would ensure future solvency of the state’s already solvent pension system.”

Here’s the thing.  As the article goes on to note, Wisconsin has the most solvent pension system in the country.  Yes.  You heard that correctly.  As Jason Stein points out, “In 2000, more than half of the states in the nation had enough money set aside to cover their pension payments. Since then, the failure of many states to set enough money aside to cover their obligations has been exacerbated by investment losses during the recession. Now, the Pew study found only Wisconsin’s system is fully funded – the national average is currently 75% for state systems.To make up the gap, the other 49 states will have to set aside more tax dollars, cut future benefits or raise contribution rates for current employees, or resort to legally questionable strategies to siphon away cost of living adjustments for current retirees. ‘It’s pretty clear that the Wisconsin retirement system is a model for the nation in terms of its long-term health,’ said Jim Palmer, who serves as both the chairman of the Wisconsin Coalition of Annuitants, a group representing retirees and workers in the state pension system, and as the executive director of the Wisconsin Professional Police Association.'”  In 2012, the Pew Research Center cited that “In 2010, only Wisconsin had fully funded its pension plan and 34 states were below the 80 percent threshold.” So, whereas this is a problem in other states, in Wisconsin, it’s just, well, not.

Those in our legislature are yet again trying to fix a “problem” that need not be solved.  Because there is no problem.  Public sector employee pensions are not bankrupting this state, nor have they ever.  And didn’t we just solve our current budget “crisis” by signing a right-to-work law,  needlessly turning away millions of dollars in federal food aid to our state’s poorest residents, refusing federal funding to expand Medicaid, diverting state school funding from public schools to private ones, cutting funding to the UW- System, and, well, you get the picture. I really thought we were done with the whole “let’s find more ways to pit private sector workers against public sector workers by pointing out benefits private sector workers don’t have, while taking away benefits from public sector workers to, well, just make their lives more difficult” thing.

This is about ideology, not policy, and again finding ways to yet again attack public sector workers for benefits they bargained for and were negotiated for.  As I pointed out in my last blog, “‘The pension is deferred compensation, and is 100% funded by money earned by the person benefiting. It’s not a freebie. And employer-subsidized health insurance actually is a standard benefit for employees of big companies. The level of total compensation for educators is quite a bit less than those with comparable education, training, and credentials receive in the private sector. And employees of private corporations don’t have to dip into their own pocket for supplies they need do their job like educators.’  In addition, as another wonderful friend pointed out, ‘Many private sector employees also benefit from matched contributions to a retirement account, bonuses, and paid vacation time.‘  Facts!”

The more we take away from public sector workers, the less likely we will get people to go into those fields.  From the article stated above, it is policies like the one proposed regarding retirement and pensions that will only further discourage people from pursuing professions in law enforcement, education, and other public sector jobs.

So to, once again, shed some light on how pensions actually work, let’s look at the work of David Cay Johnston, American investigative journalist and author who focuses on economics and tax issues, and was the winner of the 2001 Pulitzer Prize for Beat Reporting.

Myth:  your taxpayer dollars are funding public worker pension plans

As Johnston notes, the media has perpetuated the falsehood by framing pensions as “contributions.”  He states, “News reports routinely refer to contributions to pension plans by industry and government. Journalists perpetuate this misunderstanding by accepting the language politicians and others use without checking the facts, as when Gov. Scott Walker of Wisconsin said four years ago that he wanted state workers to “contribute more” to their pensions so taxpayers could contribute less.  Using the term ‘contribution’ creates the false impression that pensions are a gift and therefore optional. There are no taxpayer contributions to public worker pension plans. All the money in these plans — except for investment earnings — is compensation that workers have earned.”

Not convinced?  Take Robert Reich’s argument: (Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies):  “Here’s another whopper. Republicans say public-sector pensions are crippling the nation. They say politicians have given in to the demands of public unions who want only to fatten their members’ retirement benefits without the public noticing. They charge that public-employee pensions obligations are out of control . . . . Yes, there’s cause for concern about unfunded pension liabilities in future years. They’re way too big. But it’s much the same in the private sector. The main reason for underfunded pensions in both public and private sectors is investment losses that occurred during the Great Recession. Before then, public pension funds had an average of 86 percent of all the assets they needed to pay future benefits – better than many private pension plans. The solution is no less to slash public pensions than it is to slash private ones. It’s for all employers to fully fund their pension plans.”

And again, these underfunded pensions Reich discusses have nothing to do with Wisconsin.  As I stated above, Wisconsin does not have a pension problem.  Period, end of story.  As Democratic State Sen. Jon Erpenbach notes, “other states are facing payout issues because their legislatures and governors borrow from it — something that’s illegal in Wisconsin — and fail to repay it. He advised Republicans to drop the issue. ‘(WRS) works. It absolutely works in the state of Wisconsin, and when the Legislature starts screwing around with it or governors start screwing around with it, that’s when we begin to have a problem,’ he said. ‘We should just leave it alone. It works right now, it’s worked in the past and will work in the future.'”

In sum, and to quote Johnston, “George Orwell taught us that words matter and that political language is often shrouded in euphemism. Calculated mislabelings, such as when earnings are called contributions and taxes are called matching money, reflect a politics of deceit. They are economic cousins of the three slogans made famous in George Orwell’s novel ‘1984’: ‘War is peace. Freedom is slavery. Ignorance is strength.'”  Framing is everything.  Language matters.  Words matter.  And when we become educated as to how the system works, how language works, and how framing works, we might begin to put a dent into the misleading information surrounding the pensions of public sector workers.  Until then, we will continue to fight over what we don’t have, see public workers as the “haves” and private sector workers as the “have nots,” and instead of working together for better benefits, job security, healthcare, and a way of life, we will spite each other and continue to vote for those legislators who use the rhetorical device of divide and  conquer to get reelected leaving all of us worse off and even more divided.  So I ask, dear readers and those who may stumble across this: stop giving into this device.  Stop believing the narratives.  Enough with the “haves” and the “have nots.”  Taking away benefits from public sector workers won’t make the lives of private sector workers better.  It will get politicians elected, but if you really want a better quality of life, I suggest you turn inward and ask yourself what kind of life you want to live.  One filled with spite and envy, or one where we work together to lift each other up and where we vote for politicians who want the best for all workers, all lives, and who will fight on behalf of what’s best for each and every citizen of Wisconsin.

13 thoughts on “Dear Wisconsin Legislators: We Don't Have a Pension Problem. Please Stop Trying to "Fix" It.

  1. I’m trying to reconcile this article with the Milwaukee pension scandals that got Walker into political office in the first place, but I don’t know enough about the system to make them fit together. The story back then certainly didn’t treat the backdrop payments as something 100% funded by the workers themselves. Help?

    • Very briefly, the scandal pertained to a series of one-time payments to the chair of the Milwaukee County Board of Supervisors and some supervisors, and later other county officials. These one-time payments came from public funds voted by the Milwaukee County Board. They were in addition to the Wisconsin Retirement System pensions those official received. A summary with links to more complete information is at this URL: http://urbanmilwaukee.com/2013/03/25/data-the-richest-public-employees-in-state-history/.

      Once the scandal broke, a well-funded and organized campaign by relatively secret money interests brought Scott Walker (at the time a Wisconsin State legislator) to be elected to Milwaukee County Board Chairman.

      • A correction: the office in question is not the Chair of the Milwaukee County Board; it is the Milwaukee County Executive. The Executive is elected separately. The Board Supervisors elect the chair of the Board.

  2. Wisconsin public pensions are “fully funded” only if one assumes (as have the trustees of most pension funds, including the trustees in Wisconsin) that future returns will be higher (i.e., on the order of 7.5%) than what the economy is likely to be able to deliver (it turns out), assuming a “new normal” of 2 to 3 percent economic growth over the next several years.

  3. I believe the “problem” with public pensions, at least in the eyes of the WI legislature, is that we have them.

    Speaking to chhanks comment above, the WI pension system is somewhat unique in that employees are guaranteed a minimum payment plus an extra dividend based on performance of investments. That dividend has gone up a lot in some years, but during the most recent recession it has gone down (because of poor investment performance), sometimes to nothing. So lots of folks in retirement saw reductions in their pensions – and that is exactly how the system is supposed to work. I’m not sure where you are getting your figures on expected return on investment, but the historical return on investment (including losses) for the funds can be found here: http://etf.wi.gov/retirees/dividends.htm.

    As in most of these pension cases, the key for solvency is a good initial design and a requirement that the legislature not raid or borrow from these deferred compensation funds in order to pay off other debts. Let’s hope that continues for the sake of state employees.

    • Mr. Slothrop is right to point out that Wisconsin public pensions have “core” and “variable” annuity features that do, indeed, transfer some investment risk to annuitants, which has the effect of reducing pension underfunding risk to Wisconsin taxpayers . The “core” annuities, however, assume a “floor” investment return of 5% (see: http://etf.wi.gov/faq/annuity_adjustments.htm). It remains to be seen,however, how long it will take long-term treasuries (the safest investment vehicles in the world) to return to paying 5% —- if they ever do in our lifetimes. So, even with the additional “five-year smoothing” done for the ‘core’ annuities – it is still the case that Wisconsin taxpayers are now being exposed to public-pension risk – albeit much less than in other states – which means (contra Ms. Wilz) it is not unreasonable for Wisconsin legislators to consider further adjustments to Wisconsin public pension adjustments.

      • I retired in Feb., 2007. My pension payment in 2015 is up only $150.00 in nearly nine years. Yet Scott Walker and his Republican friends on the Group Insurance Board have handed out increases to healthcare companies year after year, thereby affecting a large net loss. In 2015 our healthcare (premium alone) is 47.7% of our pension and will rise another $90.00 per month in 2016. Helluva deal ain’t it?

  4. These are the facts. There is plenty of money, unless someone is stealing it.

    See URL below

    https://www.wisconsin.edu/ohrwd/benefits/ret/wrs/
    2015 WRS Contribution Rates*

    General/Teacher = 6.80%
    Executives = 7.70%
    Protectives = 6.80%
    w/Social Security

    Employer Contribution 6.80% 7.70% 9.50%
    Total 13.60% 15.40% 16.30%

    See URL below for WRS contribution history, 1989 to the present.
    http://etf.wi.gov/employers/wrs_contribution_rates.htm

    State public employees contributed between 0.0% and 1.5% until the Benefit Adjustment Contribution ( a.k.a. deferred compensation) was eliminated by 2011 Wisconsin Act 10. They have not received a raise in about 6 years, and before that the increases were 0, and 1-2.5% per year. Instead wages have been cut. State of Wisconsin janitors make about $20,000 a year to start, with no raises in sight. Many qualify for public assistance.

    The state paid $1.7 billion in salaries to 38,133 state employees in 2014. The median salary paid to those employees was $ $44,343.

  5. I just want to weigh in on the public pensions problem. As a person who will only retire when I save enough of my own money to do so, it makes me sick to see how easily teachers, cops and firefighters get plush pensions after 20 years of work or so. I’m forced to pay my taxes for these public leeches – BEFORE I’m even able to save for my own retirement. This is not fair.

    I hope that all public employees get put onto 401k type investment vehicles ASAP. Save and pay for YOUR own damn retirement. I’d be OK to kick in a bit of a match, but no more.

    Here’s the million dollar question for which I’d love to get a logical response from from a public servant: WHY should I pay for your retirement? Why shouldn’t YOU save/pay for your own retirement like the rest of us?

    Here’s a better idea: let’s have all public workers pay for for all private workers’ retirements! Our “public servants” could then REALLY earn their mantle! Hey public workers – waddaya think? Don’t like it? Don’t WANT to pay me 75% of my salary (with full healthcare) for the rest of my life? Well, then maybe you can see it from our taxpaying perspective now!

    And please – don’t think that I’m forgetting about that painful 6-9% pension payment you are all making. Good for you! However, this paltry sum doesn’t come close to paying for your 75% of your salary pension payments – so please hush on that justification. Let’s make it all TOTALLY FAIR by putting you onto the SAME savings plans we are on: Social Security and whatever you can save yourselves in 401ks and IRAs.

    It would also be nice if you would stop justifying your pensions by saying that you were “promised” these ridiculous benefits. Sure. Just like Bernie Madoff’s first ponzi “investors” were promised their returns. When the scam was uncovered, the original investors had their money taken away because the WHOLE thing was corrupt. Just like the pensions that were promised to you by “buy my vote” politicians. In negotiating your pensions, NO ONE was there really representing the taxpayers’ interests. And you know it.

    And by the way, while you profess that teaching is hard, that being a cop or a firefighter is dangerous, etc., if you don’t like it: change jobs. That’s what people do in the real world. You all say you “…do it for the children!…”, or because you like to protect and serve, etc. Cool. It’s so nice you aren’t doing mainly to retire at 45 with 75% of your base pay. Surrrrrrrrrrrrrrrrrrre.

    If you’d really like to understand how f’d up we are to allow public unions, have a look at the two YouTube teacher’s union videos below:

    Response to Wisconsin Teachers’ Union

    Teachers Unions explained

    They are HILARIOUS! Unless, of course, you are the ones PAYING the bills…

    Now – let’s see if flacid vote whores downstate can make this happen. The best news in this whole story is that you are about $80 billion away from getting your ghost pensions. Truly – good luck with that. I’ll be moving to a no state income tax state when I retire.

    Tired Of Paying For Your Freight

    • Mr. Oberling’s response shows and a complete misunderstanding of the WRS, its funding mechanism and how it got that way and should not be dignified with a response yet illuminates quite clearly how the likes of Mr. Trump and Mr. Walker get elected.

  6. Pingback: And This Is Why I Teach | The Academe Blog

  7. I agree 100% with Larry O’s comment, even if I’m one of those “downstaters”, living in the tax hell that is Milwaukee County and have to laugh (until I remember the actual numbers, not so funny anymore!) when I see these comments brushing off the “pension scandal” as not really any big deal, which those dark forces behind the scenes then used to scam all of the morons like myself (who’s understanding of money and economics is limited to an accounting degree that qualified me to earn CPA status had I not wanted to be an entrepreneur as well as a minor in economics) so that plus nearly 20 years of slugging it out in the not so easy world of trying to run your own biz, make a decent living and YES actually have to actively not just plan for, but also FUND the plans for a retirement that sure as hell won’t be at 55 (seriously??!!) well all of that REAL WORLD experience told myself and a LOT of others from all sorts of backgrounds that the “pension scandal” was just that, A SCANDAL-AKA BLATANT THEFT!

    Furthermore, if there’s a floor on the annual return rate of 5% (and I’ll break from MKE county gov’t tradition here and say something honest, I admit I haven’t looked into that part of our pension systems and rules) but assuming that is true, anyone saying that these defined benefit plans just don’t have any need for taxpayer money to cover shortfalls is either a liar or clueless as far as current economics and interest rates go! When the Fed did its 0.25% rate increase early this year, did you remember hearing anything about that rate being somewhere around or over 5%??!! Of course there will be shortfalls then and where’s that money going to come from???

    So, add that insanity on top of the insane decisions this county board has been making for decades now, tossing a few hundred grand to a “friendly” law firm when they don’t like their own in house counsel’s sensible legal advice, or just dodged a multi million dollar bullet with the Estabrook Dam, hey let’s keep it in place because the new board chair’s district is there and he wants to make a handful of property owners fat and happy with their little fake lake, awwww isn’t that great! Sure, I’ll pay for that crap too! Who else wants to ride the gravy train??

    Uh oh!!! A beloved MKE county landmark, the domes need MAJOR repairs!! WHAT DO WE DO???!!! HOW ABOUT A TIME MACHINE TO TAKE US BACK 20 YEARS TO REVERSE ALL OF THESE STUPID, OFTEN UNETHICAL AND SOMETIMES EVEN FLAT OUT ILLEGAL GRAVY TRAIN HANDOUTS AND THEN WE’D NOT ONLY HAVE THE CASH TO FIX THE DOMES, WE COULD BUILD 50 MORE DOMES IF WE FELT LIKE IT!!!! I hate to see them go, but sometimes a bit of pain fixes bad habits, maybe losing the domes will finally wake people up to this mess and no, I don’t shed any tears for those poor county workers. Welcome to reality!!!

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