Wisconsin: "WRS For ALL" - A Proposal to Expand the WI Retirement System to All WI Workers

[Scuba]

An interesting proposal showed up in my email today. Please read and comment if you have a moment...


Buzz Davis, of Stoughton, WI is a former VISTA volunteer, Army officer who served in S. Korea during Vietnam, elected official, retired state government planner, union organizer and senior activist. [e-mail]

"WRS For ALL"
A Proposal to Expand the WI Retirement System to All WI Workers

All workers deserve financial security in their retirement years. Wisconsin should use the WI Retirement System as a model and expand the WRS to cover all workers in the private sector to ensure all WI workers - public and private - will have financial security.

WI can be the first state in the nation to provide a defined benefit (DB) pension plan with guaranteed fixed payments for the life of all retired workers. A WRS pension will encourage workers to come to and stay in WI during their careers. Smaller businesses, the job creators in our economy, will have a strong recruitment tool. They will also retain good workers instead of those workers leaving to find better benefits. The WRS for All will draw employers to WI and help retain and grow companies in our state - thus creating more jobs. Private sector workers will spend their work years in WI knowing they will have a secure retirement. Workers could move from employer to employer in WI or from public to private sector or vice versa and know they will retain their pension. As private sector workers retire, with both a WRS pension and Social Security, they will have more money to spend in retirement thus promoting economic growth and job creation.

Public DB pensions, on the whole, provide higher monthly pension checks than do private pensions which are mostly 401(k) type defined contribution (DC) pensions. In general 401(k)s cost up to 40% more than DB pensions to produce the same retirement income.

How can we build a WRS For All? By working together, a number of alternatives can be drafted, costed out, one or two best approaches chosen, hearings conducted across the state to gather input and a final proposal made for consideration by the legislature for enactment. Possibly a statewide referendum could be conducted on the final proposal prior to enactment to determine what voters think.

One option could be a twin sister to the WRS for private employees. All private sector new workers and all present workers could be started on that system with the workers and employers each paying about 6% of the workers' salaries. A second option could be a WRS program that would be a lower cost and lower defined benefit pension where employer and worker each pay a lower percent of salary.

The Department of Employee Trust Funds (ETF) and the State of WI Investment Board (SWIB) staff would be expanded to handle the extra work. The financial advantages of this to taxpayers are that the public management of the WRS is more cost efficient than private sector management and the WRS has a 50 plus year track record of being one of the best managed public pensions systems in the USA and the world.

Pension experts will have to figure out the options for companies with 401(k) plans and recommend a best option to the legislature. Companies with defined benefit pension plans might "freeze" plans in place and transfer all present and future workers into the WRS For All. Their retirees might then get two pension checks - one from the company and one from the WRS. Or, after financial analysis by experts and approvals, the company might buy into the WRS and be relieved of the management of its company pension plan.

Another set of issues is how to handle bankrupt companies or bought up/merged companies. These and other scenarios have to be studied by experts to develop solutions. Most likely a WRS For All pension system would be implemented in phases over a number of years - implementing the easiest parts first. For example, placing all new private sector workers in WI into the WRS For All is easy compared to all the issues surrounding what to do with present workers already in company plans.

The above issues and more need to be studied in depth. There are many think tanks, public like UW-Madison's La Follette School of Public Affairs, and non-profit like the Institute for WI's Future or Center for WI Strategy and others. Think tanks, the Joint Legislative Council (the research arm of the WI legislature), ETF and SWIB staff and others could meet, outline a research plan and form teams to conduct the research, develop options and draft recommendations. A team of the governor, legislative leaders (balanced between Republicans and Democrats), ETF and SWIB staff, private sector employers, workers and unions should be appointed to manage the entire development project and make a final WRS For All proposal to the governor and legislature.

The legislative bill once drafted should be submitted to the Joint Survey Committee on Retirement Systems. The Joint Survey Committee should conduct legislative public hearings across the state to gather input and recommendations for modifications. The Committee and the Joint Legislative Council staff should conduct further research and actuarial studies as needed and report all findings back to the originating committee for legislative discussion and decision.

The process may take a couple of years because retirement systems are complex and many people, companies and groups are stake holders. But it can be done if people and leaders are determined.

WI has handled complex issues in the past. WI was a national leader in the development of the WI State Unemployment Compensation Fund from which unemployed private sector workers receive unemployment checks. It is mandatory that all companies pay into this fund. A second example of a mandatory statewide fund is the WI Workers Compensation Fund which makes payments to workers injured on the job.

We must fix the pension situation in WI. Future private sector retirees face a dire situation.

Nearly all public sector workers already have an employer retirement plan and those plans are almost all the best type - traditional defined benefit plans paying a fixed monthly check for life.

But more than half of all workers in the US have NO retirement program with their present employer and WI is probably no different. Those private sector workers WITH an employer pension plan have the worst plan - the 401(k). In America 60 million workers have 401(k)s averaging just over $60,000 per account. Workers within 10 years from retirement have an average of only $78,000 in their 401(k) - such amounts will not last very long. Social Security pays the average single retiree $14,800/yr. while the average couple receives $22,000/yr. Poverty for a single person is earning less than $11,000/yr. and for a couple it is earning less than $15,000/yr.

Thus Baby Boomers with no employer pension or a very modest 401(k) will not have financial security in retirement. We have a crisis. Future retirees will be poorer than present retirees.

How did this happen? In 1976 America had about 35% of all workers covered by pension plans with 30% having the traditional DB plans. Only 5% had DC plans like 401(k)s. Private sector pensions have eroded over the last 35 years due to off shoring good paying jobs that had pensions, and due to companies converting from DB to DC pensions thus shedding their pension responsibilities and costs thus increasing their bottom line enabling them to pay higher CEO salaries and stock dividends. Most workers do not have very good investment skills to handle 401(k)s. Financial management companies are reaping $60 billion per year in "management" fees from 401(k)s. The corrupt banks and Wall Streeters caused the recent financial crash causing 401(k) owners to lose $1.6 TRILLION - about 33% of all the money in 401(k) accounts.

Just as WI workers and leaders handled the complex issues of unemployment and work site injuries a hundred years ago, we can work together to help ALL WI WORKERS obtain retirement financial security today. We should move WI forward by designing and implementing the WRS For All now!

Sources: http://aspe.hhs.gov/poverty/11poverty.shtml
http://theweek.com/article/index/226886/how-401ks-are-failing-millions-of-americans#
http://money.usnews.com/money/retirement/articles/2011/02/07/7-reasons-you-dont-have-a-pension
http://www.bls.gov/opub/working/page11b.htm
http://www.jpmorganinstitutional.com/cm/BlobServer/2012_Public_Eye_Newsletter_Spring.pdf?

[deminwi]

1. Great idea!!

Thank you, Mr. Davis, for trying to help all of us in Wisconsin! This is an amazing idea and I hope that it comes true!

[a kennedy]

2. This is an outstanding idea.....

and Scuba, so glad to see you again. Have your recovered from the recall??

[Scuba]

3. Thanks. Alive and well and fighting the good fight...

http://www.democraticunderground.com/?com=view_post&forum=1084&pid=3895

[a kennedy]

4. Report cautions against major changes to Wisconsin Retirement System

Yeeehaaaa.....now this some fantastic news, isn't it??

A much-anticipated report on the Wisconsin Retirement System cautions that making major changes to the highly rated fund could create greater costs for taxpayers while undermining benefits for hundreds of thousands of current and future retirees.

Authored jointly by Walker administration appointees and the semi-autonomous Department of Employee Trust Funds, the report released Monday morning warns against creating two new alternatives for public sector workers.

Gov. Scott Walker and the Republican-led Legislature last year mandated the study of system finances and structure, including the possible addition of a 401(k)-type option and the option allowing state and local workers to stop paying into the system.

Extensive actuarial studies over the last year indicate that either option would be costly and inefficient, while posing legal problems, according to the report, delivered to the Legislature's powerful budget committee Monday morning.

Adding a 401(k)-type defined contribution option probably would increase costs to taxpayers and employees while decreasing benefits to retirees, the report's executive summary states. There would be additional costs for death and disability benefits.

The opt-out alternative poses the same problems, and it could be difficult to win approval for such an option from the Internal Revenue Service.


http://host.madison.com/wsj/news/local/govt-and-politics/report-cautions-against-major-changes-to-wisconsin-retirement-system/article_e4f6a03e-c452-11e1-b649-001a4bcf887a.html