Pension fund retirement istock file photo
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Wisconsin is certainly facing some significant budget challenges but its public worker pension system isn't one of them.

With current assets of nearly $80 billion, the Wisconsin Retirement System (WRS) is the ninth-largest public pension fund in the U.S. and by all accounts one of the most solvent.

Wisconsin was ranked a "solid performer" last year by the Pew Center on the States and is one of just four states, with Florida, New York and Washington, whose pensions are considered fully funded at over 95 percent. The means they've been putting enough money away to cover predicted future payouts to retirees.

At the other end of the spectrum, eight states -- Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia -- are less than 67 percent funded, according to Pew. Illinois is the worst, with a funding level of 54 percent and an unfunded liability of more than $54 billion.

But with Gov. Scott Walker looking for ways to close a $3 billion budget gap, there are growing fears among the 570,000 participants in the WRS that lawmakers might find this big pot of money simply too tempting.

Already, Walker has proposed taking $28 million from the Group Health Insurance Fund, a $1.1 billion segregated fund used to pay insurance premiums for state employees. He wants to use the money to help cover the state's share of insurance premiums through June 30.

The bigger question, however, is whether any governor could simply dip into a state pension fund and use it for other purposes like fixing roads or offering tax breaks to business.

The short answer, according to national experts, is "no" -- but you can never predict the future.

"Public pensions have long enjoyed both constitutional and case law protections," says Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities in Washington, D.C. "A governor can't just take the money out."

Public employees and their unions have always claimed that contributions to the pension come in lieu of salary and are part of their total compensation. The idea is you trade $1 in pay today for $2 down the road in pension, taking investment gains into account.

With that said, however, cash-strapped states across the country are taking a tough look at their pension plans, traditionally one of the bigger perks of working for the government. Several states are now shifting new hires into a 401(k) type retirement plan, basically a savings account with tax advantages. Most private employers have been doing the same thing since the 1980s.

Utah recently voted to make a partial changeover to a 401(k)-type plan. Alaska, Colorado, Georgia, Michigan, Ohio and several other states have already made the switch in one form or another.

And Wisconsin could soon join them. Walker's budget repair bill includes a provision directing state officials to study changes to the WRS, including replacing the defined benefit plan or traditional pension with a defined contribution plan like a 401(k). Other items up for study here include longer vesting periods, changes to health insurance payouts and higher deductibles.

Worries over what might happen next are sparking a flood of calls to the Department of Employee Trust Funds, the state agency that administers the WRS.

"I'd estimate we're getting 5,000 calls a day but so many people are getting busy signals that's just a guess," says Matt Stohr, spokesman for the ETF.

Stohr says many of the calls are coming from people seeking information on how much they would get if they retired now. Other calls are coming from employees concerned over potential changes related to converting accumulated sick leave into health insurance.

Among those concerned about their pension is Bert Dodds, a policy analyst with the Department of Administration who has more than 20 years of service with state. Dodds holds a master's degree in planning and makes $57,000, enough to support his wife and 6-year-old daughter.

Like every other public employee in Wisconsin, Dodds isn't thrilled about having to contribute 5.8 percent of his salary to his pension and pay more for health insurance under Walker's proposed budget. He figures it will mean about $400 a month less in take-home pay, making things tighter at home.

But since Dodds, 54, needs to keep working, he also wants some assurances his pension will be there when the time comes.

"Most people aren't at the point where they can retire," he says. "And it gets to be a little bit of a trap because the pension becomes such a big part of your compensation you hate to leave."

Those already retired and drawing a pension are pretty safe, says Keith Brainard, research director of the National Association of State Retirement Administrators.

"Once you earned a benefit, they can't take it back," he says.

But for those still working things are murkier, says Brainard, one of the nation's leading public pension experts. Legislatures can always vote to push back the retirement age, increase the years of service or adjust the payout schedule - although any such moves could also face legal challenges.

Minnesota and Colorado have been sued for attempting to change their rules. Facing shortfalls in their pension plans, both states have sought to roll back promised cost of living increases for their members.

Public workers are fighting back, claiming the changes violate state laws. The fight could well set a precedent for other states as they attempt to deal with tight budgets and an aging work force.

For those not yet working, just about anything goes, says McNichol of the Center on Budget and Policy Priorities.

McNichol says governments could eliminate the defined benefit pension entirely for new hires and offer them a 401(k)-type plan. Many private sector unions have been agreeing to those kinds of changes, with the thinking that you first protect the older employees who are closer to retirement age.

"One way to reduce your obligation in the future is to reduce benefits for new employees," she says.

Generally speaking, support for switching from traditional pensions to personal accounts comes from Republicans, who view them as more "free market" by taking the responsibility off government to provide for old age. Democrats and their public employee union allies largely support the status quo.

Wisconsin is in a slightly different situation, however, since its pension fund remains flush. There is no pressure to close a yawning gap between how much is in the fund now and how much has been promised in the future.

"They say pensions are driving the crisis but I don't buy it," says Brainard, who has been following the Wisconsin situation.

In fact, Brainard has only good things to say about the Wisconsin Retirement System and how it has been managed over its 50-year history.

"Wisconsin is in good shape," he says. "The system is well-funded, the benefits are modest, and it has this flexible annuity that when the stock market tanks, it can reduce the payouts. As difficult as that might be for pensioners, it helps preserve the solvency of the system."

So while some WRS retirees might grumble over seeing a smaller check in the lean times, it sure beats the alternative.

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Pension giants

Here is a sampling of the world's largest pension funds based on 2009 year-end numbers.

1. Japan Government Pension -- $ 1.3 trillion

2. Norway Government Pension -- $475 billion

5. U.S. Federal Government Thrift -- $234 billion

6. California Public Employees -- $198 billion

9. New York State Employees -- $125 billion

12. Canada Pension Fund -- $122 billion

20. General Motors -- $99 billion

23. Texas Teachers -- $91 billion

26. AT&T -- $80 billion

29. IBM -- $77 billion

30. State of Wisconsin -- $73 billion

34. Ohio Public Employees -- $67 billion

38. General Electric -- $58 billion

Source: Towers Watson consulting firm