Yesterday was an incredible day for news, and my head is still spinning. And some of the news content has given me a theory, which might explain Governor Scott Walker‘s stubbornness about refusing to yield on the collective bargaining issue. It is only a theory now, but if I am right – then Walker may have stepped on the proverbial bee hive. The nuggets of information in the news content:
1. Huffington Post blogger – Zach Carter posted something interesting about the financial health of the Wisconsin Retirement System (WRS) and its ability to pay current and future retirement benefits.
2. Zach also referenced a report prepared by the The Pew Center on the States.
3. The main point of the two articles, was that the Wisconsin Retirement System is very close to being 100% funded for current and future retirement benefits.
These facts, caused me to ask “Does the Wisconsin retirement plan have excess assets that could be re-captured by the state government if they terminate the plan and replace it with a different type of retirement plan?
Time for a little history lesson. Back in the late 1980’s to early 1990’s, a lot of American companies were still providing retirement benefits for their employees with plans that provided annuity income when the employee retired. The IRS and Dept. of Labor considered this type of plan to be a safer and more valuable benefit than account balance plans. It reduced the risk to employees of fluctuations in the stock market, because retirees are guaranteed a monthly or annual income, and the retirement benefits are not affected by market losses or gains.
But, a significant percentage of these plans were over funded back then, which made these plans targets for employers wanting to recoup the excess assets. And the recovered excess assets were significant – many times it was in the millions of dollars. The only way an employer could recover these assets was through terminating the plan, paying out the accrued benefits to the employers through lump sums distributions or purchasing deferred annuities. Once the plan had paid out the benefits accrued by employees – the remaining assets would revert to the employer (i.e. the plan sponsor) and would flow back to the corporate balance sheet. The excess assets could not go to the employees, it was prohibited because of the way these plans are legally structured.
Think Gordon Gekko and the first Wall Street movie. Most of the terminated plans were replaced with less expensive 401k plans, mostly funded through employee contributions. And the responsibility for managing the growth of the these funds were left to the employee.
I think we all know how that worked out, through the dot com bubble, 9/11 and the 2008 financial crisis.
On to Page Three of Governor Walker’s Budget Bill, third paragraph from the top, there is very interesting language that leads to the very important question for Governor Walker. The paragraph mandates that a study of the existing Wisconsin Retirement System be performed and it must “specifically address establishing a defined contribution plan as an option for WRS participating employees” and the deadline for completing this study is June 30, 2012. I don’t think that Walker would be adding retirement benefits for workers – so I am wondering if the Republican Governors that are trying to get rid of collective bargaining of retirement benefits, so that they can terminate the existing plans and recover excess assets for their state balance sheets.
If Governor Walker’s bill passes, and collective bargaining of retirement benefits is eliminated, then next year Governor Walker can decide it is in Wisconsin’s best interests to get rid of the existing plan and replace it with something less valuable for the employees. And the employees would have no say and no one can keep Walker from raiding your retirement savings.
Again, hard-working Americans are getting the short end of the stick. Do you think this is the American Way? We need to ask Governor Walker if he is planning to get rid of the existing Wisconsin Retirement System and raid your retirement plan!
Kristen Emery 
It appears you may have connected some dots. A number of states have changed from defined pension plans to defined benefit plans. Alaska come to mind.
Thanks for the comment. I used to work on this type of plan back in the 80’s and 90’s. I remember reading that Alaska has already switched over to a Defined Contribution plan a couple years ago, will find the site and send it to you. My article just touched on the beginning of things that i notices – way too much for a single post. And it is a theory right now, don’t have enough info. But, when I looked up greenmail to refresh my mind of what went on in the 1980’s and 1990’s I noticed several names that show up in GOP supporters.
This needs to go front page! This is what I most suspected from the beginning is that there is way more to the story than unions and budgets!
Me too. Three weeks ago I told friends I am more concerned about the news NOT being reported than the news that they are. We must be pretty smart.
Pingback: WI Gov. Walker – Is He After WI Retirement System Money? at Edited For Clarity
Thank you for linking to my post. I am trying to get the info to people in Wisconsin so that they are aware. Great information on your site, I hope you do not mind if I link back to you. . Looking forward to your clarity on the issues.
WI teacher here – thank you for this article, terrifying as it is. We’ll get the word out! My only question is, what do we do about it? Besides going forward with the recall effort…
I have 29 years in with the City. 8 of those years were part-time so in actuality I have 24 years. Would it be wise to take early retirement before all this goes down in June? I would be taking quite a loss but it may be better than nothing..
Kristen,
This is brilliant. My only disagreement (although maybe you’ve implied it) is that this is the work of Walker and state Republicans. It isn’t. It’s the work of big businesses who want complete control, unrestricted operations and no accountability. Clearly, Walker is nothing more than a puppet, being told what to do and what to say.
Oh… could you tackle the “municipalities will no longer have to sanitize drinking water” portion of the bill next?
Great stuff!
Andrew B.,
Thanks! And you are correct, about it being the work of Big Business. They have the purse strings, and therefore the source of the power. I think that will be the material for another blog post!
And per your request, I will tackle the “municipalities will no longer have to sanitize drinking water” next. And I am sure there will be a wealth of issues in the upcoming Budget Bill.
Wait, what? There’s a “municipalities will no longer have to sanitize drinking water”??? What the heck is that?
Joleen,
Here is a link to an article on the rollback of requirement to sanitize drinking water. Seems to be in a separate bill. http://goo.gl/q6O5g Gov Walker seems to be really sneaky.
I emailed your link to The Rachel Maddow Show. Not only do we need to get this out to Wisconsin but also the country.
Julie,
Thank you for doing that and have been emailing it to others. I agree, but do want to reiterate that it is a theory and am looking for additional information. But, I think there are a lot of hidden items issues buried throughout Walker’s budget repair bill and the upcoming budget. It is incredible what he is trying to do.
Since the Republicans and Walker specifically withhold information and lie, asking them doesn’t do any good. You have to get them when their guard is down like Ian Murphy (Buffalo Beast) did.
Under these conditions it is best to imagine the worst case scenario and assume it is true
This is *exactly* what is at stake here. This bastard wants to take something that works fine, and costs the state NOTHING, and raid it for some short term cash.
Here’s the thing, if he goes through with this. Those protests we saw this weekend? Where everyone was spirited and happy and we marched and yelled and held our signs and there we NO INCIDENTS of violence? (I was there, BTW).
Imagine instead everyone of those people INCLUDING the 80 year old grannies, charging up cap hill with bottles and bricks and pitchforks and torches. OK, maybe it won’t happen quite like that. But it *will* be ugly. And violent.
People spent their entire adult lives paying into that system, and were/are happy to do so because it is about as rock solid as anything else you can bet your retirement on, including Social Security. If Walker f—s with that, the mood in the entire state will turn *really* ugly.
I am paying into the WRS, and if he messes with it in some ill-advised plan to shore up the state’s weak finances, I’ll be right there on the barricades with everyone else.
I know what you mean. There is so many things wrong with what Gov Walker is trying to do in your State. I live in Northern California, and I am incredibly angry about what is going on. Angry enough to read his 144 page bill and try to figure out what sneaky stuff he is up to.
Please be aware, that it is only a theory right now, but I am on the trail of experts to get further information. I will post what I find.
Thanks for your efforts. It is so hard to believe what is happening to our fine state. Sadly, everyone thinks it is only a union issue, but its about destroying our good schools and the economy for the working men and woman.
Debra,
I know that it is not a union issue, and we need to keep talking about it. That is the only way to change the perception. It is also important, and shows that we cannot just sit back and not participate otherwise we will lose our freedoms. Wisconsin is a Nation issue, and is a quick peek into the future. Thank God your Senators had the presence of mind to get the heck out of Dodge!
Boojieboy – Don’t you understand that you need to be at the barricades with your middle class brothers and sisters NOW!!! Walker’s (Big Business’s) strategy is divide and conquer, and appeal to false sense of “rugged individualism”. Waiting until specific plans to destroy the retirement system are unveiled will be too late!!!
Be careful what you say…Lt. Col. Scott Fitzgerald, yes that’s right Lt. Col. Scott Fitzgerald, is well connected with military sympathizers I am sure!
Was there ever any doubt the Scott Walker had ulterior motives to make himself look good and cater to the Huge Corporate Parties in Wisconsin that are taking greed to a new level of obscenity.
There was never any doubt in my mind. However now it is apparent that not only was there no doubt, but there was enough respect and confidence for this person/party/trainwreck for 52% of voters to give him what he sees as a “clear mandate” to violate us. The lies, the lies, the lies, the greed.
You are on to something, our Wisconsin Retirement System is based on both a core fund and a Variable Fund (which is an opt-in for investments in the stock market). It is the Variable Fund component that has kept us safe thus far–because the investments are opted into and the money accrued is variable (we lost money the last couple of years). That is, we as investors benefit from taking the risk…thus, it (ETF) no longer owns that part of the fund. This dual trust system would need to be completely dismantled by Walker in order to eventually get Trust dollars. This is exactly what he wants to do through the dual mechanism of this study and the new compensation plan, which goes into effect July 1, 2011. We will have no voice–no unions, no Trust, etc..just Walker and Cronies taking our money. The other blogger was correct–there will be violence.
Thank you so much for getting this out there. While it may just be a theory, it’s plausible enough for it to be true.
At this point I wouldn’t put anything past them as too underhanded. These are the same people who have denied the Constitutional (both US and WI) of us here in WI to enter our Capitol building.
I doubt that Scott Walker will ever admit what his REAL reason is for eliminating collective bargaining for public employees but you have developed a theory that makes sense and fits all the facts. As a retired public employee in Wisconsin I thank you for your insight and I will forward your blog to absolutely every person, organization and publication I can think of . . .
Another dot that’s worth connecting in all of this is that there’s an exodus of people of retirement age that are currently leaving state employment to collect their retirement benefits *now* who see the writing on the wall. Linked is just one article, I’m sure other areas of the state could say the same. http://ashlandcurrent.com/article/11/03/01/more-teachers-expected-retire-year It was also mentioned that within the University of Wisconsin – Madison alone there are approximately 40% of faculty that are of retirement age. Its perhaps good, if not a mixed bag, in that helps offset budget cuts. But it begs the question how many retirees can the WRS handle at one time?
Scott,
Thanks for the comments. Since the plan is considered very close to being fully funded, then the fact that 40% of the faculty is of retirement age, would have already been factored into calculations by the plan’s actuary. I would bet there would not be any issues with paying out the benefits, and my theory is that the plan would have excess assets that the Governor is trying to get a hold of.
I have to laugh when I hear that this is about the unions hard earned rights as working class employees. It is not a right to be able to collectively bargain with government when the taxpayers are not represented in the bargaining process it is a hijacking. Teachers in WI belong to the WI state pension plan and all employees are supposed to contribute 6.2% to the pension fund – but thanks to collective bargaining and weak government representatives in the pocket of big unions they successfully bargained their way out of contributing anything in 1996. Guess what? We are sick and tired of paying all of their share. Oh yeah – I forgot they are publicly saying that they are going to give in to the concessions but yet out of the public eye they continue to sign back room contract deals while the gutless 14 hide out in IL.
You are entitled to your opinion. But, that is a misconception that the taxpayers are paying the employees share of the benefits. Base pay and benefits are part of the full compensation package. And it is your opinion (not a fact) that the taxpayers were not represented in the bargaining process. Also, the main point is that the unions agreed to accept the requirement to contribute the requested amounts to their beneifts – so why is Governor Walker insisting on removing collective bargaining?
Ms. Emery is absolutely correct. The “employer contributions” that LIberalblahblahblah thinks subsidized by the taxpayers are nothing more than pre-tax deferred compensation. Just like the Big Boys in the World Of Business get … or would he prefer to say those Big Boys steal them from the consumer and/or shareholders?
The tax payers are represented in every collective agreement by their elected officials. If you don’t like your elected official voting for a contract, vote him out of office. Also, judging by the public backlash this has caused for the Republicans in Wisconsin, I would imagine a few won’t be around next time.
As far as paying their fair share? How do they not? Walker cuts taxes on business and then claims the losses in revenue from those taxes must be taken from the working class? That actually makes sense to you?
And I have to laugh when I read folks like “LIberalblahblahblah” foam about the consequences of honoring contractual obligations. The State struck a deal with the unions; the union struck a deal with the State. Just because one of the parties to the bargain doesn’t like the way the deal turned out years down the road does not constitute grounds for voiding the contract. The sanctity of the contract is a foundation to our economic system since the Dark Ages (indeed, before).
A contract is a contract. Unless it can be shown to be void for some legally sound reason, then the parties must live with the consequences. Econ. 101.
well my wife works for Madison school district and she make a little over 14 an hr and her raises have been going towards the retirement/medical insurance for years she is not sitting high on the hog and she could go someplace else and make more money but had chose to stay they for the benefits which she could have got with a new job with better pay the retirement is part of her wages
I’m wondering if in the BUDGET REPAIR BILL the following statement means that money will already be taken from the Wisconsin Retirement System if that bill is signed. I’m not sure what the “reserve accounts” are from the WRS account or from somewhere else. Here’s the statement:
“This bill requires the secretary of employee trust funds to allocate $28,000,000, from reserve accounts established in the public employee trust fund for group health and pharmacy benefits for state employees, to reduce employer costs for providing group health insurance for state employees for the period beginning on July 1, 2011, and ending on December 31, 2011.”
Esther,
I noticed that language as well. But that is in connection with the health insurance benefits, not the retirement plan. But that is another issue, that is probably on the Governors agenda. I am not familiar with health insurance benefits. Thank you for taking time to comment.
Wisconsin Retirement System Retirees Take Notice–This is the first shot in the Budget Repair Bill to raid $28 million from reserve accounts established in the public employee trust fund to fund group health and pharmacy benefits for RETIRED state employees within the Wisconsin Retirement System and take those trust funds as “found” State Budget revenue to be used instead for the State’s contractual obligation to pay health insurance premiums for current state employees in the last half of 2011. Walker doesn’t get the fact that these are TRUST FUNDS for the benefit of retired Employee Trust Fund beneficiaries, not to fill holes in State budgets. Legally, he should not have access to those funds, as I believe the funds should only be used to reduce group health insurance and pharmacy benefits for RETIRED state employees. Most people do not realize that retirees pay the full amount of their own individual or family health and pharmacy insurance premiums by direct deductions of those premiums from their monthly ETF benefit checks. Thus, these reserve funds belong to retired state employees, not the State of Wisconsin! Wake up fellow Wisconsin ETF Retirees, Walker and his Republican Legislative cronies are about to steal $28 million of YOUR ETF money. Walker is “finding” revenue by robbing from you and giving your money to fix the State Budget.
Thank you for exploring such a critical question. I teach English in Eau Claire, WI, and I recently started a blog for my students. I’m trying to get them to study topics in ways that lead to complex understandings of how our world works, much like you’re doing here. It’s amazing how powerful a good question can be.
I’m currently working on a post about why Walker wants to separate UW-Madison from from the other universities. With a little research, it looks like one motive is so he will be able to appoint a new board, which would be able to pursue extreme conservative agendas. One of his top priorities might be the elimination of embryonic stem-cell research, which got its start at UW-Madison.
Separate in order to make it private.
When this proposal was first dumped on Wisconsin, I, a 24-year teaching veteran here, felt like I’d been punched in the gut. Then I cheered up and marched twice in Madison (without missing any school!) and started writing a weekly fan letter to the Fab 14 besides sending them financial support. Ten minutes ago, I read your theory–which rings true–and for a minute I felt like I’d been punched again. But it was only a minute. Now I’m getting my mad on again. And I am also laughing like a crazy person, because THIS is going on too: On Saturday, March 12, Wisconsin farmers are driving a convoy of tractors to Madison in support of workers because small farming communities will be devastated by the cuts to education. Read about it here: http://familyfarmers.org/
YOU TOTALLY ROCK! Genius!
Good digging here. The one good thing I have to say is that by this time next year (2012), Governor Walker will be recalled and replaced. His plans will not go through.
I am convinced that’s what they are up to. When I was at Madison a couple of weeks ago and talked to my GOP senator’s chief of staff, I told him one of the reasons I did not like the elimination of collective bargaining was that some enterprising governor might decide I have too much to retire and use it to plug some budget gap. He became decidedly squirmy. That is totally their plan, bet on it.
haaaa the red harring
This blog post is not factually correct. The current retirement savings cannot be legally “raided”. The retirement plans moving _forward_ can be changed, of course, as they’ve been modified in the past.
Also, it is very important to understand defined benefit vs defined contribution when discussing pensions.
btw, I’m not a supporter of Gov. Walker, but it is important to focus on what he and the Republicans are _actually_ doing wrong, rather than foment hysteria about things they aren’t or cannot do.
You should look into the Public pension system in NJ and how Gov. Whitman [R] took over $1,000,000,000 from the public pension system, at the time creating a plan to have the state pay it back. It should be no surprise to find that there was a loophole in the system and for over 8 years the state and cities haven’t paid a dime. This did not stop the cities filing the payments into their budgets so as to claim deficient budgets when asking for aid, even though they didn’t make a payment.
Have you looked into the State life insurance program that is self sufficient that is slated to be cut as well? seems to work well with your theory.
In California, they transitioned a few years ago from having money managers employed by the state to outsourced management. The fund’s health declined significantly in a short period of time, I think even before the recession, but perhaps someone else has more concrete knowledge of that. Could the move simply be to privatize, make a bunch of money on fees, and then complain that the plan is underfunded? In my decade working for state governments, we’ve gone from, “it’s fully funded, a wonderful benefit that makes up for the lower salary” to “it’s underfunded, the benefit is not guaranteed, and we’re going to erode your salary even further to pay into an uncertain future.” And working for the state went from a good choice for those who need stable income to looking like a tactical error that will knock my family out of the middle class.
Well, your contemplation is a no-brainer and not a secret, per se. I hope you’ve written letters to the local newspapers. (if that has already been suggested, I apologize. I did not read all the comments)
What are the legal ramifications of grabbing that money? Any lawyers giving input?
The only thing I would add is that this would likely occur 3 years from now rather than 1 year. From a legal standpoint, pay-out of benefits is based on the last three years combined earnings, and this budget is all about driving down those earnings. As well funded as the Pension system in Wisconsin is, waiting 3 years rather than 1 or 2, could reduce the state’s obligations by the billions. That is why it is so important to Walker personally that it get passed this year.
This plan has been attempted before by our last Republican governor, Tommy Thompson, who (finally) left Wisconsin to work for George W. Bush. He raided the retirement account to use while he was in office. Our unions sued to get our money back, but we had to take the case all the way to the supreme court, before the case was settled. Tommy Thompson was forced to pay it back. He cried “poor” and asked to be allowed to pay it back over 14 years, although it had taken him only days to drain the account in the first place.
The union saved us by suing that time, but Scott Walker will certainly try it again. You’re absolutely right. He needs to get rid of the unions in order to steal our retirement money.
I had this inkling about a week or two into the protests when I began to ponder what the “real” power grab behind this fight was about and why he was so focused on killing collective bargaining for state employees. Thank you for laying it out so clearly.
It also may explain why Ohio is on the same path. They have a similar system, though I’m not sure of its financial health.
If this is the game, as another poster noted, this will get UGLY!
Michael Moore lays it square on the table. http://www.youtube.com/watch?v=wgNuSEZ8CDw They not only want that money… they want all of it, along with the power.
Take away collective bargaining and all employees are back to being told this is what they are going to get. Period. Take it or leave it… there are others looking for the job.
They are willing to destroy the fabric of the county for their short term gain.
They don’t look far enough ahead to see the destruction, they only see the dollar signs. Once they’ve extracted the cash value from it, they’ll give the county back to the democrats to mop up their mess.
Um, gee… didn’t that just happen when Obama got elected?!?
I think someone needs to “explain” it to walker.
Scott Walker and hidden agendas department: if you look at the interests that the Koch brothers could have in Wisconsin – and in weakening state environmental rules – it is in their oil and gas business need for “frack” sand for natural gas production in states with shale deposits – our area of Wisconsin has some of the best deposits of this kind of sand, and a full scale rush to get that sand – regardless of the effect on public health and neighbor’s property values – is going on as we speak.
More recently, the WI Republicans eliminated the requirement to conduct “costly fiscal studies” before making changes. So the June 30, 2012 target date for studies has largely been side-stepped.
Keep a watch on future retirement and health plans proposals.
I just want to say you’re a clear and impactful writer, and I’m looking forward getting emails of your posts. Thanks for your great work.
Read ” Retiremnet Heist” by Ellen Schultz! Yes, “Gekko’d” is an actual Wall Street term! The greedy creeps have gotten away with murder (i.e. the housing collapse) and nobody goes to prison!? So, why not keep on stealing from ordinary, hard working Americans?
Hopefully, things can be fixed without any violence. If we could learn only one thing from history, it would be that violence only hurts the innocent!! Let’s do what we Americans have the priviledge to do, vote for our leaders; and perhaps think about running for offices ourselves! And yes, in the case of Govenor Walker, have our “representatives,” recalled if they are not truly representing the will of the people!!! Talk alone will not help. Get information from various sources, make educated decisions, and then vote!
What is the matter with you republicans?…my boyfrd has stopped contributing to you..and we will never touch a republican key on the ballot..ever again…grow up…
It is time to put a few more locks on the henhouse. Walker smells the chicken that lays golden eggs and he has a lean and hungry look.
Wall Street is starting to drool. Pavlov knew what he was talking about. Remember that old axiom, “A fool and his money are soon parted.”
Walker and Wall Street know this to be a fact.
The problem with switching to a defined contribution plan for the employee is that most traditional retirement plans reward long term employees. The benefit level increases towards the end of their career. When companies (or governments) switch to these defined contribution plans the people who are the most affected are the older, long term employees. These employees lose because they will now never hit that period of age and service that the receive the enhanced benefit.
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