Wisconsin must reform public employee pensions
As a former public employee, I was included in the Wisconsin Retirement System. I always knew the WRS was generous. I didn’t realize until I recently asked a veteran actuary, Joan Gucciardi, to compare WRS benefits to those in the private sector just how much that generosity costs taxpayers.
The answer: far more than it needs to.
Look at how public pensions are funded. Taxpayers contribute about $1.3 billion a year to the WRS. Public employees pay almost nothing. With government budgets strained, it’s time to ask employees to contribute half of the cost of their own pensions. This would cut the taxpayer burden by more than $600 million per year.
But the focus of the WPRI study was to compare Wisconsin’s public pensions with pensions of private-sector workers. Here are some of the findings:
n While private pension systems have undergone significant change in recent years, the WRS has been insulated from any similar alteration.
n Only 8 percent of Wisconsin and northern Illinois private-sector employers, representing an estimated 20 percent of the total private-sector workforce, still offer defined-benefit pensions. Almost all other private-sector employers today have defined-contribution plans such as 401(k)s that require employees to contribute at least half of the money.
n Public employees stop working at much younger ages and still have considerably more money after retirement. A private-sector employee would have to earn about $70,000 a year before his or her retirement income would typically equal that of a public-sector employee earning $48,000.
n Taxpayer-funded pensions remain so generous in Wisconsin that career public employees—without saving anything during their work years—can often have higher standards of living after they retire than they did while they were still earning paychecks. Pensions for public employees who work at least 25 years, Gucciardi found in other words, are more than adequate to meet employees’ retirement needs.
Wisconsin—given our budget woes—simply can’t afford this any longer.
Change is possible that can both save taxpayers hundreds of millions of dollars a year and ensure that public-sector retirees still have well-funded and fair pensions they worked hard for and deserve.
Wisconsin’s next governor can go a long way toward resolving the looming state budget deficit by making one simple change. Eliminating a provision that allows employers to pick up the “employee share” of WRS contributions would save taxpayers more than $600 million annually.
Beyond that, Wisconsin needs to look seriously at public pension reform. Switching new hires to defined-contribution plans, altering formulas used to determine benefit levels and increasing public-sector retirement ages could also save taxpayers money. Retiring at 57 is virtually unheard of in the private sector. It should be in the public sector, as well.
The reality is that the WRS is both expensive and far out of the mainstream when compared to what the vast majority of Wisconsin employers offer their employees.
The next governor should make pension reform a priority.
George Lightbourn is the president of the The Wisconsin Policy Research Institute, P.O. Box 382, Hartland, WI; phone (262) 367-9940; e-mail email@example.com; Web site www.wpri.org.
Joan Gucciardi’s study, “The Imbalance Between Public and Private Pensions in Wisconsin,” can be found on the institute’s Web site.