Anxious retirees bombarded the state with phone calls and e-mails in recent months, worried that their pensions could face a serious hit this spring because of the faltering stock market.
As it turns out, they had good reason to worry.
The two funds that feed public employee pensions lost more than $26 billion over the past year, falling to a total market value of $61.8 billion, according to preliminary results announced by the state. That means tens of thousands of retirees will be stung by cuts ranging from 2.5 percent to 20 percent or more in their pension checks this spring.
But by the time that became evident, there was no way for the pensioners to avert the losses. And some say that's not right. They think it's time to change the system.
"I was shocked," said Nancy Cozzens-Ellis, a retired state employee. Cozzens-Ellis, 71, Madison, figures she will lose nearly $500 a month from her pension when the new amounts take effect May 1. "I'm going to have to live a pretty sparse life," she said.
As Wall Street and the nation's economy skidded, 1,825 e-mails were sent to the Wisconsin Department of Employee Trust Funds (ETF) in November and December alone, a 150 percent jump over the 725 e-mails received during the same months of 2007.
A total of 22,922 phone calls poured in over the two-month period, up 2.3 percent from the same months in 2007. Even more calls would have been tallied had the agency had enough employees to field them, speculated Matt Stohr, ETF director of legislative affairs and communications.
"We spent a lot more time on the phone when people actually got through to us" than last year, he said.
Wisconsin has the nation's ninth-largest public pension system, and it is set up in a unique way. There are two funds: the Core Fund and the Variable Fund.
All state and local government, UW and school district workers whose employers are part of the Wisconsin Retirement System — including the city of Madison and Dane County — are automatically part of the Core Fund. Considered a balanced fund with a mixture of assets, the Core Fund smooths, or balances, its results over a five-year period.
So even though the Core Fund's preliminary 2008 result was a drop of 26.2 percent, retirees' pension benefits will decrease a more moderate 2.5 percent to 3 percent for the 12-month period that starts May 1.
It is the first reduction ever for Core Fund participants, and it will affect all 142,000 retired public employees with money in the Wisconsin Retirement System.
But the amount is paltry compared to the loss that will hit 36,000 retirees who have been putting half of their pension money in the Variable Fund. The entire 39 percent shrinkage in that account will be passed along to them — and then some. Because the Variable Fund anticipates growth of 5 percent a year, the total reduction to that portion of a retiree's pension check could be as much as 45 percent.
"I never thought that this would ever happen," Cozzens-Ellis said. "I don't think people realize there might not be a safeguard fixed in."
Variable Fund rules
Of the 545,000 current and former public employees in the Wisconsin Retirement System, 113,000, or nearly 20 percent, have money in the Variable Fund.
As of 2007, the average retiree invested solely in the Core Fund received monthly pension checks of $1,790. Those who had part of their money in the Variable Fund got checks averaging about $2,000 a month.
Participating in the Variable Fund is optional, but those who do so must allocate their retirement contribution 50-50 between the Core Fund and the Variable Fund. There are no other alternatives for dividing up the money.
(Over time, the actual ratio invested in each account will vary because of changes each year in the gains or losses for the funds. Also, gains and losses are different for members who are still employed because of actuarial adjustments.)
Wisconsin Retirement System members have to decide by Dec. 31 if they want to participate in the Variable Fund the following year. And they can't jump in and out to try to take advantage of the market's ups and down. Once they are in, if they choose to withdraw, they are not allowed back in.
One of the problems, said retired state employee Douglas King, Mount Horeb, is the time lag in getting information. The state Investment Board, which manages the Core Fund and the Variable Fund, doesn't report on the funds' performance until January — days after current and former public employees have to decide if they want to designate half of their retirement allocation to the riskier Variable Fund.
"At the end of the year, when we're making this life-altering decision, I'd like to know what the numbers are," King said. "You can't earn your way back from a bad decision."
King said he thinks the system needs changes, such as letting retirement system members know how much money is in their account before Dec. 31, and delaying the decision deadline until after the year's performance figures are released.
Cozzens-Ellis said she thinks participants should be able to choose an allocation of less than 50 percent for the Variable Fund, in increments of 10 percent, or the Variable Fund should be eliminated entirely.
That's what the 13-member Employee Trust Fund board of directors recommended in December, saying the Variable Fund should be phased out by closing it to anyone whose money is not already in the account.
"We believe the Variable Fund … is not appropriate for the design of the Wisconsin Retirement System," said ETF secretary Dave Stella. The state Legislature would have to pass a bill enacting that change, he said.
With the stock market's spills and chills in 2008, 2,113 WRS members chose by mid-December to cancel their investment in the Variable Fund while 3,100 members elected to start putting money into the account. Those changes will take effect this month.