Wisconsin Public Employee Pensions to Rise at Least 2.4%

A strong 2017 investment performance means Wisconsin Retirement System (WRS) retirees will see annuity increases of at least 2.4% beginning May 1, according to the state’s Department of Employee Trust Funds.

The 2.4% adjustment will be provided to all 203,000 WRS retirees, while approximately 41,000 of those retirees will also see the variable portion of their annuities increase by 17.0%.

That translates into an extra $560.66 a year for the average retiree, and $1,538.39 a year for the retirees who have part of their money in the Variable Trust Fund, agency spokesman Mark Lamkins said, according to the Wisconsin State Journal.

The dividends are a product of investment returns earned on the WRS’ assets. The Core Fund, which covers all participants in the WRS, had investment returns of 16.2%, and recorded its fifth straight year of positive gains, following five straight years of losses. Meanwhile, the Variable Trust Fund earned 23.2% for fiscal year 2017.

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The WRS does not offer guaranteed cost-of-living adjustments (COLAs), but instead provides annual annuity adjustments that are based on trust fund investment returns, and the funding needs of the WRS.

The State of Wisconsin Investment Board (SWIB) manages the Core Fund, which is heavily invested in stocks, but also has holdings in bonds, real estate, and private equity. Gains and losses are spread out over a five-year period to help keep annuity adjustments and WRS employer and employee contribution rates stable, which explains the large gap between the size of the returns and the size of the dividend payout.

The Variable Fund is only invested in domestic and international stocks, and gains and losses are not smoothed, which is why participants in this fund saw a significantly higher return. However, this also means those investors are exposed to a higher degree of risk.

Over the past five years, the Core Fund annuity adjustments have averaged 2.5% a year, according to the State Journal, compared to the US Consumer Price Index, which has risen an average of 1.4% a year during the same time period.

The Wisconsin Retirement System is the ninth-largest US public pension fund, with approximately $108 billion in assets. Last year, the WRS paid nearly $5.2 billion in retirement benefits.

Tags: Annuity, Pension, Wisconsin Retirement System

Life expectancy at birth has fallen for the second straight year, according to data from the National Center for Health Statistics (NCHS). And while it’s unlikely anyone would want to celebrate that, this can often be seen as a boon for pensions because it typically means reduced costs.

However, Segal Consulting says that life expectancy is still improving for those who have reached retirement age, and that pension plan actuaries should not reverse expectations for mortality improvement.

By law, funding for single-employer pension plans is based on mandated Society of Actuaries (SOA) tables and projection scales that are based on mortality data for private sector workers. While lower life expectancies typically mean lower costs for pension plans, Segal says it’s not so cut and dry, as there are many nuances to consider.

“For professionals who study population statistics, like actuaries and demographers, there are subtle but significant differences between life expectancy, longevity, life span, and mortality,” said Segal’s report.

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Life expectancy is the result of a calculation that estimates the average number of years until death at a specific age, while longevity and life span are less specific terms that refer to an estimate of how long an individual might live. Meanwhile, the mortality rate is a ratio of the actual number of deaths to the size of the total population for a specific age or age group.

“Despite these differences,” said the report, “the media tends to use the terms interchangeably to refer to the estimated number of years until death.”

However, between 2015 and 2016, death rates increased significantly for those under 45, while death rates decreased for those older than 65. Additionally, an analysis by the SOA confirmed that although the life expectancy for newborns decreased based on the NCHS study, the overall age-adjusted mortality rate in the US improved, albeit by less than 1%.

“The recent mortality rates observed for the retired population continue to support expected improvements in life expectancy for this group,” said the report. “Therefore, it is important for actuaries of multiemployer plans not to reverse their expectations for mortality improvement in response to the latest data.”

Segal also said while refinements may be necessary in the actuaries’ assumptions for pension plans, they should be based on longer-term trends.

“There has indeed been a trend of lower improvement over the last several years even at the older ages, but we should be cautious about setting long-term assumptions based on shorter-term trends—even when those trends last a decade,” said Segal. “It is too soon to tell whether longevity for the retired population will continue to improve at high rates.”

Tags: actuary, life expectancy, National Center for Health Statistics, Statistics