The protests in Wisconsin over public workers' pay, benefits and collective bargaining rights have underscored a dilemma facing many states: the cost of public pensions and how cash-strapped governments should pay for them. But the turmoil overshadows a salient point: Wisconsin may have a budget deficit, but its pension system does not.
Studies show that Wisconsin's state pension program is one of the most solid in the country and has enough funds to cover the promises made not only to current retirees but to those in the future. Wisconsin was hailed as a " national leader
" in managing its long-term liabilities for both pensions and retiree health care in " The Trillion Dollar Gap,"
a Pew Center on the States report last year. (Pew Center on the States is Stateline 's parent organization.)
Protesters have camped out in the Wisconsin Capitol for nearly three weeks to protest a "budget repair" bill from Republican Governor Scott Walker that would require public workers to pay substantially more for their pensions and other benefits and sharply limit their collective bargaining rights. Walker and other Republicans say the package is needed to plug a $3.6 billion hole in the state budget while Democrats and organized labor view the legislation as a political attack on unions. Similar legislation — and protests — are occurring in Ohio, Indiana, Maine and other states.
Keith Brainard, research director of the National Association of State Retirement Administrators, says that retirement systems eat up a small portion of state and local government budgets, and that the portion is unusually small in Wisconsin — 1.35 percent
in 2008, compared to an average of about 3 percent nationally. "The implication is that pension costs are a driving factor in this state's fiscal problems," he says, which isn't true.
"The Wisconsin Retirement System is one of the better funded plans in the nation," says Jean-Pierre Aubry, a research associate at the Center for Retirement Research at Boston College
, which tracks state and local pensions. He says Wisconsin has consistently contributed 100 percent of the amount of money that actuaries calculate is needed each year, and has a funded ratio well beyond the 80 percent benchmark that experts consider healthy.
The numbers show that Wisconsin stands out in a nation where unfunded state pension liabilities have been estimated at $1 trillion or more.
From Governor Walker's standpoint, however, it's an issue of equity. From 2000 to 2009, the governor says, Wisconsin taxpayers spent about $12.6 billion on public employee pensions
while public employees contributed only $55.4 million.
State, school district and municipal employees who are members of the Wisconsin Retirement System generally pay little or nothing toward their pensions. The governor proposes requiring unionized workers in the system — except fire and police employees — to contribute 50 percent of their annual pension payment. The higher contributions for most employees would work out to about 5.8 percent of their annual salaries. The changes would save the state an estimated $210 million over the next two years.
"It's fair to ask public employees to make a pension payment of just over 5 percent, which is about the national average," the governor said
when he introduced his budget package. The state Assembly has approved it; final passage awaits the return of Senate Democrats for a quorum to act on the bill.
Milwaukee Mayor Tom Barrett, the Democrat whom Walker defeated for governor last fall, objects
to Walker's collective bargaining restrictions, but says if Walker's budget repair bill is approved as drafted, all public workers should be treated the same. The city's police and fire workforce makes up 65 percent of Milwaukee's operating salary budget, and excluding those employees from having to pay toward their pensions would cost the city more than $14 million, the mayor says.
Milwaukee's fire and police unions endorsed Walker in the election whereas most other unions endorsed Barrett. Milwaukee's city attorney also has argued that the governor's pension proposal as it applies to Milwaukee city workers is unconstitutional
, violating a legal pension settlement reached with city workers a decade ago.
It's interesting to contrast Wisconsin's pension situation to that of neighboring Illinois, which by many accounts is in the worst shape of any state, having less than 40 percent of the necessary funds to meet its long-term state pension obligations, according to state figures. For the second year in a row, Illinois has had to borrow billions to make its annual pension contributions, including $3.7 billion in bonds
just last month. The pension hole is so deep in Illinois that the nonpartisan Civic Federation estimated
every man, woman and child in Chicago would have to pay nearly $12,000 to make up the state and city's unfunded public pension liabilities, up from $2,442 just a decade ago.
How did two adjoining states get in such different situations? Pew gave Wisconsin high marks because the state has developed a creative way to share some of the risk of investment volatility with employees. It substitutes a dividend process for standard cost-of-living increases. If the investment returns are positive in a given year, the system can declare a dividend that is paid to retirees. But this is not guaranteed. If a good year is followed by one with poor investment returns, retirees can see their pensions reduced. That has now happened three years in a row.
Illinois, on the other hand, has consistently failed
to contribute the amount of money that actuaries calculate is needed each year, paying less than 60 percent of the required amount every year since 2005. Illinois took steps in 2010 to shore up its pension plan by increasing the retirement age for new employees from 60 to 67, the highest of any state, and capping the salary on which public pensions are figured. But these moves will take a long time to save much money, and Illinois' pension problems remain desperately serious, especially compared to those in Wisconsin.