Press Release

For Immediate Release
February 25, 2002

Contact: Pam Henning, (608) 267-2929

Department of Employee Trust Funds Announces 2001 Annuity Dividend and Variable Adjustment for WRS Retirees

MADISON -- Eric Stanchfield, Secretary of the Department of Employee Trust Funds (ETF), announced that Wisconsin Retirement System (WRS) annuitants will get a 3.3% dividend (increase) in the Fixed Fund portion of their May 1 retirement checks. The Variable Fund adjustment is a decrease of 14%. The 3.3% annuity increase has an impact on the retirement income of approximately 112,000 WRS annuitants, nearly 90% of whom reside in Wisconsin. Approximately 27,000 retirees also participate in the Variable Fund; they will have this portion of their monthly retirement annuities reduced by 14% this year.

In comparison, the Consumer Price Index (CPI) for fixed annuities increased just 1.6% in 2001. Over the past ten years, the average annual increase granted to the fixed portion of WRS retirement annuities has been 5.6%, where the CPI average is 2.5% over that same period.

"We are very pleased to be able to give retirees a raise in the fixed portions of their annuities that exceeds the 2001 increase in the Consumer Price Index (CPI)," said Stanchfield, who added that gains in the Fixed Trust over the past few years have worked to "smooth" recent volatility in the market.

Department records indicate the average fixed annuity is currently $1,533 a month; $18,404 a year.

ETF was able to grant a fixed annuity increase due to the Transaction Amortization Account (TAA) payout of $1.98 billion in 2001 and because SWIB losses from 2000 and 2001 are spread over a five-year period. By law, only a percentage of the difference between the market value and purchase price of stocks and bonds in two accounting mechanisms used to "smooth" market volatility can be distributed to the trust fund accounts annually. The two mechanisms currently at work are the TAA and the newly created Market Recognition Account (MRA). 1999 Wisconsin Act 11 provided for a five-year elimination of the TAA when it created the MRA. This is the second year of the TAA phase-out; 20% of the TAA balance as valued at the end of the year for the next three years is being paid out, and investment gains and losses are credited instead to the new MRA.

Eventually, the MRA will be the sole accounting mechanism for smoothing fixed trust earnings. The change to the MRA will mean a faster recognition of gains and losses than occurs with the current TAA.

Summary and Additional Background Information

• Over the past 10 years, the Variable annuity adjustment averaged 6.4% annually, compared to the CPI average increase of 2.5%.
• Over the past 19 years, the Variable annuity adjustment averaged 7.2% annually, compared to the CPI average increase of 3.2%.
• Over the past 19 years, the Fixed annuity dividend has averaged 6.0%, compared to the CPI average increase of 3.2%.