As we’ve written before, Wisconsin has one of the best public pension systems in the country. The Wisconsin Retirement System is a model state pension system that is well-funded and provides a secure retirement to public employees throughout the Badger State. Last week, Governor Scott Walker signed a bill that will expand access to that secure retirement.
Senate Bill 134 allows municipalities that do not currently participate in WRS to join and add their employees to the state pension system. This is a boon to local governments, who will now be able to offer enhanced benefits for workers at a low cost, alleviating hiring and retention concerns for the employer. It’s good for the WRS – a strong and stable system – which will now have more members. Finally, it’s a win for public employees like firefighters and librarians in towns like Sun Prairie, who will now have access to a safe and secure retirement.
Wisconsin is not the only Midwestern state with a successful state pension system for municipalities either. The Illinois Municipal Retirement Fund is one of the strongest pension systems in the country and weathered the Great Recession well. One reason for IMRF’s success is that it requires municipalities to make their annual payments. We know that state pension systems get into trouble when the states skip their payments. In almost every instance of a poorly funded state pension system, the root cause is the state legislature not making its annual payments into the system. All pension plans dealt with the effects of the recession, but the majority of those plans have recovered and are now at healthy funding levels. The ones that are not are the ones that have been underfunding their pension plans for decades.
The lesson from all of this is that the design of defined benefit pension plans is strong. As long as state governments make their annual payments into the system and the fund is well-managed, then the plan succeeds. Furthermore, traditional defined benefit pensions continue to be the best way to provide a safe and secure retirement. A recent report from the Economic Policy Institute underscores the failures of 401(k) plans. This means it is all the more important to expand access to pension plans as Wisconsin just did.