Press Release

For Immediate Release
March 16, 2001

Contact: Pam Henning, (608) 267-2929

Department of Employee Trust Funds Announces Interest Rates, Annuity Adjustments Funds For 2000 and Impact of Wisconsin Act 11 on Rates

MADISON -- Eric Stanchfield, Secretary of the Department of Employee Trust Funds (ETF), announced that the Department has established the 2000 effective interest rates applied to the Fixed Retirement and Variable Retirement Investment Trusts. The effective rate credited to the Fixed Trust Fund will be 10.4% -- the sixth year in a row the fund has seen a double-digit rate increase. The interest rate credited to the Variable Trust was set at minus 7%.

The fixed effective rate of interest has an impact on the retirement accounts of active and inactive employees who began employment before January 1, 1982. About 66,808 active and another 42,000 inactive participants those who have left public service but still keep their retirement accounts open qualify for effective rate interest crediting. The remaining 257,000 active and inactive members, by law, receive a 5% increase.

The negative return on the Variable Retirement Trust, which is invested exclusively in common stocks, means that the 19,000 active and inactive employees who participate in the Variable will have that portion of their account value reduced by 7%. Another 26,000 retirees participating in the Variable will have this portion of their annuities reduced by 11% in 2000.

Rate Subject to Change When Court Opines on Act 11

The 2000 effective interest rate may be further affected due to a pending a Wisconsin Supreme Court decision on 1999 Wisconsin Act 11, the benefit improvement law that makes substantial changes to WRS benefits and funding mechanisms. The Supreme Court has not issued a decision on Act 11. The original petition for Court review was filed on December 23, 1999. If all provisions of Act 11 are legal, the effective interest rate credited to the Fixed Trust for 2000 will be 10.9%.

Act 11 also allows the 257,000 members previously guaranteed 5% to receive effective rate interest crediting from the date of the law (January 1, 2000) forward.

Post-Retirement Dividends

The Department also announced the dividends for the systems 106,000 retirees: The benefit (dividend) increase for 2000 is 5.1%. However, if all provisions of Wisconsin Act 11 are legal, the fixed annuity adjustment for 2000 will be 5.7%. The Variable Annuity Adjustment was minus 11% and is not affected by Act 11

"We are pleased that all of our members will see increases to their Fixed Fund balances, despite the performance of the markets in 2000," says Stanchfield.

Act 11 Would Alter 1999 Rates

Last year the Department announced a 13.5% effective interest rate credit to the Fixed fund balances of active and eligible inactive employees for 1999. If all provisions of Act 11 are declared legal, that Department now says the rate will retroactively change to 24.1%.

In 1999 WRS retirees were given a 7.5% benefit (dividend) increase on the fixed portion of their annuities. Act 11 would retroactively change that to 17.1% .

If the Supreme Court ultimately approves Wisconsin Act 11, a supplemental dividend will be paid to retirees at a later time. Members who retired in calendar year 2000 will receive a prorated dividend based on the number of full months they were retired. The dividend will be based on the Act 11 provision that dictates funds be transferred from the Transaction Amortization Account to the Annuity Reserve.

SWIB Returns for 2000 in Negative Territory

The actual Fixed Fund investment return, based on the market value of assets, as reported by the State of Wisconsin Investment Board (SWIB) last month, was minus 0.8% in calendar year 2000. The positive rates of interest credited to members Fixed Fund balances are the result of the accounting mechanisms in the Fixed Retirement Investment Trust that "smooth" investment gains and losses over a number of years.

The Variable Fund investment performance for calendar year 2000 as reported by SWIB was minus 7.2%. The difference in the Variable Fund interest credited to member accounts and the return reported by SWIB is due to accounting differences and a law that requires the Variable Fund performance credited to WRS member accounts be adjusted to a whole percentage point.

Summary and Additional Background Information

• Over the past 10 years, the average annual increase in the Variable Annuity Adjustment has been 10.3%.
• Over the past 10 years, the compounded average annual increase in the Fixed Annuity Dividend has been 5.8%.
• Participation in the Variable Trust was closed to new entrants in April 1980. Wisconsin Act 11 would reopen the Variable Trust. Participating employees on or after January 1, 2001 can elect to have future contributions placed in the Variable Trust. Former Variable participants who cancelled their original participation may also re-enroll.
• The Department has received more than 60,000 applications from active members wanting to elect Variable participation effective January 1, 2001 if the Supreme Court rules that portion of Act 11 legal.

Frequently-Asked Questions:

Why do the fixed and variable rates credited to annuitant accounts differ from the effective interest rates credited to non-retiree accounts for 2000?

Answer: The WRS uses the effectiveinterest rates to calculate annuitants monthly dividend and variable adjustments, factoring in a five percent investment earnings assumption and other actuarial adjustments for mortality.

Fixed Fund Effective Rate Percentages and Annuity Adjustments Applied to Eligible Member Accounts

** If all provisions of Act 11 are ruled legal, these rates will displace, not supplement, the "Without Act 11" rates.

Note: Annuitants who retired in 2000 will receive a prorated dividend based on the number of full months they were retired.