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.
A fiscal estimate of the bills’ impacts has not been conducted, said Stroebel, but he said the result of averaging the top five years of income will “be more representative” of workers’ salaries.
“We’ve all seen situations where people get a political appointment in their final three years and their retirement is based on that (higher) amount,” Stroebel said. “Is that fair?”
Stroebel said he proposed raising the age at which public employees may retire early, in part, to save the state money, because those employees haven’t been working long enough to pay enough into the system to cover their payout after retirement.
Public employees can retire at age 65 and get full pension benefits, but they may opt to retire earlier and get reduced payments. The system covers 596,000 active employees, retirees and former employees with deferred benefits and paid out $4.4 billion in 2014, state Department of Employee Trust Funds spokesman Mark Lamkins said. As of 2014, the Wisconsin Retirement System was 100 percent funded, Lamkins said.
“There is a minimal financial impact on the system from early retirements,” Lamkins said. “However, the pre-funding of benefits and shared risk ensures that the system continues to be fully funded.”
According to a 2014 study by the National Association of State Retirement Administrators, retirement systems that changed the basis for their payment calculation from an employee’s top three years of pay to five years decreased the overall benefit to each recipient by 2.4 percent.
The study used an annual 2.5 percent wage growth assumption. Lamkins said using WRS’ 3.2 percent wage growth assumption, recipients would see a 3 percent drop in benefits.
“The report indicates that on average, the reforms to eligibility and contributions referenced in the report mean that employees would have to work 2 years, 8 months longer to reach the benefit available to employees hired previously,” Lamkins said.
Between 1987 and 2014, public school teachers had the highest percentage of early retirees as a group at 16.5 percent — almost double the rate of other groups — but the percentage of teachers choosing early retirement dropped significantly in 2014 to 11.6 percent, according to a June analysis completed by the Department of Employee Trust Funds, which oversees WRS.
Opponents say the changes aren’t needed, since Wisconsin has the most solvent pension system in the country.
“This is a solution in search of a problem,” said Rick Badger, AFSCME executive director of Council 32 which represents state workers. “Wisconsin’s retirement system is the envy of the nation. It’s fully funded and well-managed. But if some kind of change is needed, it should be fully vetted by the governing boards that look at the big picture.” Stroebel said the measures proposed in his bill will ensure the system remains solvent in the future.
Mark Lindsey, an Oregon High School history teacher and president of Wisconsin Education Association Council’s Region 6, which comprises 57 school districts in Dane and surrounding counties, said the proposals are another “attack” on public employees.
“Whether or not employee contributions came directly out of paychecks or not pre-Act 10, we were always paying our share because the employer contribution was counted against the compensation budget we negotiated,” he said.
Stroebel’s pension payment legislation mirrors a federal bill introduced earlier this year by a Republican congressman from Arkansas, which would go into effect Jan. 1, 2017, for federal employees. The Congressional Budget Office estimated the move would save about $3 billion over 10 years.
But a higher retirement age could actually cost the state money, said Wisconsin Professional Police Association executive director Jim Palmer.
“The current retirement age saves tax dollars and better promotes public safety by allowing the older and higher-earning officers that are more susceptible to injuries to retire and be replaced by younger officers that not only earn less, but are less likely to get hurt on the job,” said Palmer.
Stroebel reiterated early retirements are “costing us right now.” He said he wants a full study of the state pension system.
Palmer said the motivation behind changing the way pension payments are calculated “appears to be based upon a perception that some employees work as much overtime as possible in their last few years of service to boost their annuities.”
Palmer said for law enforcement officers, overtime is unavoidable.
On Friday, Palmer said he had received “innumerable calls and emails” from officers around the state about the proposals.
“It’s clear that they are concerned that bills like this will only further discourage people from pursuing the law enforcement profession,” he said.
Badger said any changes should be approved by the board that oversees the state’s pension system.
“Wisconsin’s system works so well because it was designed to be insulated from political meddling,” he said. “It’s managed by professionals and actuaries who think long term.”