Lawmakers propose funding Wyoming employee retirement contributions
Last week lawmakers on Wyoming’s Joint Appropriations Committee approved a proposal to partially pay for employee contributions to the state’s main retirement fund. The proposal will be debated by the full legislature in the session that begins February 10th.
Since 2010, the Joint Appropriations Committee has required state employees and their agency employers to contribute more to the state pension fund. Following an increase in employee retirement contributions made in 2013, the legislature is considering another increase for 2014. The rationale is to reduce the unfunded liability of the Wyoming Retirement Fund.
“State employees haven’t had pay increases in four years, so having to pay more to pension plan is like a pay decrease, which is difficult,” said Ruth Ryerson, director of the Wyoming Retirement System.
In recognition of that fact, Gov. Matt Mead requested that the state cover increases in employee contributions to the pension fund from 2013-2014. “When contributions change, and the change is paid for by the employee, take-home pay is diminished,” Mead wrote in his budget message.
Mead’s proposal for the state to cover the increased pension costs helped protect his major priority for state employee compensation: a 2.5 percent annual salary raise for the coming biennium. Though the Joint Appropriations Committee approved only 2 percent annual raises for most employees, they did agree to Mead’s recommendation for the state to pay the increased retirement contributions.
The total retirement system manages an investments portfolio of $7.5 billion, with 42,000 employees paying into the system, and more than 23,000 retirees collecting benefits. Those employees include members of the executive and judicial branches, and employees at the University of Wyoming, community colleges and K-12 schools.
Mead’s budget would have the state pay for the 2013-2014 retirement contribution increases for all of those government divisions. City and county employees who are enrolled in the state retirement system would not have their contributions covered under Mead’s plan.
Making the retirement fund whole
Starting in 2010, the legislature added a 2.87 percent increase to employees’ required retirement contribution, which would be split roughly 50/50 with the state, meaning that an employee would pay 1.43 percent out of pocket. In other words, an employee making $100,000 would pay $1,430 in retirement contributions.
Then in 2013, the legislature passed a bill that included another retirement contribution increase of 1 percent. The law provided for employees to pay .25 percent and employers to pay the other .75 percent for the first three years. After that, the added contribution would be split .5 percent for employees and .5 percent for employers.
The proposed increases for 2014 came after a revision of the retirement system’s actuarial model. As of Jan. 1, 2012, the retirement system was projected to be 81.87 percent funded, meaning that it could cover that portion of its liability to retirees 30 years from now. New funding assumptions that went into place in February of 2013 dropped the funding ratio to about 72.8 percent.
The new assumptions related to increasing life expectancy, and a decrease in projected annual investment returns from 8 percent to 7.75 percent. That means the fund will need additional income, via employee and employer contributions, to reach its goal of being 100 percent funded by the year 2043.
“The good thing is the legislature is being conscientious to make sure plan is funded and it will be there for retirement,” Ryerson said. “A lot of states and cities put off keeping a plan healthy, and the people who get hurt are the retirees and the people counting on it. I think Wyoming is very responsible in how they are approaching this.”
Over the summer, the Joint Appropriations Committee discussed increasing the contribution by another one percent by mirroring the 2013 bill. However, the committee revised that to increase the contribution to 1.5 percent, with the employee paying .375 of that for the first three years and the state absorbing the rest. After that the split would be .75 percent out-of-pocket from employees and .75 percent for the state.
In October, the Wyoming Retirement System met with the Joint Appropriations Committee to discuss plans to increase retirement contributions for plans that are needed: Public Employee Plan, Fireman B Plan, and the Warden/Patrol/DCI plan. In the 2014 session, the JAC will introduce a budget bell that contains increases for these three funds.
If the legislature were to pass the retirement increases as previously proposed, the employee out-of-pocket contributions as a percent of salary would look like this:
- Fiscal year 2015: 1.43+.25+.375=2.055 percent
- Fiscal year 2016: 1.43+.25+.375=2.055 percent
- Fiscal year 2017: 1.42+.5+.375=2.305 percent
- Fiscal year 2018: 1.43+.5+.75 = 2.68 percent
However, last week the JAC agreed with Gov. Mead’s recommendation to cover the employee share of the 2013-2014 increases through 2016. If the proposal becomes law, it would help employees who have seen a decrease in their take-home pay since 2009, said Betty Jo Beardsley, executive director of the Wyoming Public Employees Association.
“Their take-home pay has gone backwards a total of 3.68 percent due to retirement increases and the payroll tax holiday,” Beardsley told WyoFile. Specifically, she pointed to a 2 percent increase in federal payroll taxes to fund Social Security and Medicaid. That came about because of the end of a federal tax holiday for the Federal Insurance Contributions Act tax (FICA) in 2012.
Additionally, Wyoming employees began paying the 1.43 percent of their salaries to the state retirement fund since 2010, and .25 percent in 2013. The total of those increases is a 3.68 decline in take-home pay for employees, Beardsley said.
The way Beardsley sees it, the 2 percent annual raises lawmakers will consider for both 2015 and 2016 will serve to restore employee take-home pay back to 2009 levels. During last year’s session Beardsley told Joint Appropriations co-chair Sen. Eli Bebout (R-Riverton) that state employees would be more willing to accept paying more into their retirement accounts if they were paired with salary raises.
“If you give them a little and take a little, that would be acceptable, but right now you are just taking, taking, taking, and not giving anything, and they are losing ground,” Beardsley said. “That also is impacting the communities, and the economy.”
Bebout maintained a conservative approach on the issue of employee compensation throughout the Joint Appropriations Committee negotiations last week. A press release sent out following the meetings explained that Bebout has an ethic of strict budgeting because Wyoming is forecast to have declining energy revenues in the next six years.
“We can’t spend more than the forecasts predict,” Bebout wrote in the release. “While we did our jobs to design a conservative and sound budget, we have to be vigilant in the future and protect the people’s bottom line.”
Inside the Wyoming Retirement System
The Wyoming Retirement system contains several different plans for different kinds of state workers. The Public Employee Pension Plan, also known as “The Big Plan” covers most state workers in the executive branch, including the university community colleges and some employees of K-12 schools and local governments.
Other plans cover firefighters, emergency medical technicians, the judicial branch, law enforcement, and a separate plan that is for the Department of Criminal Investigation, the highway patrol and game wardens.
In recent years, the staff of the state retirement agency has grown from about 20 to 37. Director Ruth Ryerson said about seven of those employees were added when the state treasurer’s office shifted its deferred compensation staff to the retirement agency.
Another two employees were added when the legislature required that two educators be added to the staff to inform retirees of their benefits. At the suggestion of consultants, the retirement agency hired a professional investment staff of four people to manage its $7.5 billion in investments.
During budget hearings last week, legislators questioned the growth of the investment staff and the need for making $400,000 available to pay for their salaries. Sen. Curt Meier (R-Lingle), who sits on the state retirement board, suggested to Sen. Eli Bebout (R-Riverton) that it’s important to pay the staff what they are worth.
Ryerson backed that up. “It’s a $7.5 billion system that affects a lot of people in the state, and we need to have a professional investment staff,” she said. “Every 1 percent in additional return that staff can get from managing the investment well is another $75 million dollars. That’s huge.”
In 2012, the Wyoming retirement system saw gains of 14.1 percent, exceeding the anticipated rate of return by 6.1 percent. From 2010-2012, the system saw had a rate of return of 8.1 percent, exceeding the 8 percent anticipated rate of return.
“Normally, we say don’t count on excess returns to make up for these contributions, but this will reduce the unfunded liability, which is a positive,” Ryerson said.
— Gregory Nickerson is the government and policy reporter for WyoFile. He writes the Capitol Beat blog. Contact him at greg@wyofile.com. Follow him on twitter @GregNickersonWY.
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Thank you for this very comprehensive news article. As a retiree in this system, I value any information about the plan. I am glad to hear the WRS is working hard to keep the plan funded for the future. A defined benefit plan does require regular, substantial contributions from both employees and employers to stay solvent. It is hard to live on the fixed pension as we haven’t had a COLA in years. Regarding a previous comment about 401K plans being better, they have problems too. 401K plan were designed for highly paid executives who could afford the fees brokers charge to manage the funds and who could rely on other sources of retirement funding. 401K’s were really like bonuses. For the average worker, a 401K plan will be like a bare bone after the brokers have collected all their fees. Everyone’s retirement portfolio should be like a three-legged stool: pension, plus Social Security plus savings(in the form of 401Ks, IRAs, etc.). If you are not contributing to all three from the get-go, you will face financial hardship at retirement.
I agree with that the state of Wyoming should cover the contributions to the plan for existing employees. That being said any new hires should be allowed a 401-K retirement plan and the existing defined benefit plans, which I understand from the article are just that, be phased out. WY having its own “investment staff” is reminiscent of Orange County, CA in the 1970’s-80’s. There are many solid investment companies and banks that can handle this retirement fund for a much smaller cost, with a balanced portfolio.
As a former 30-year employee of the State of Wyoming, I thought this was a very informative and timely article. I agree that current Wyoming state employees on the low end of the income scale deserve a pay raise over the next two years as a limited catch-up measure to compensate for inflation, contribution to the retirement fund, etc. Certainly 2% is not much, but better than nothing. However, I feel it is significant that legislature is ignoring the fact that those of us who contributed faithfully to the retirement system in the past are now in the infamous “fixed income” predicament. We have to deal with the annual increasing cost of living the same as current employees.
…….some in the State AG’s office, program managers, policy and planning, computer technology, some deputy directors, human resource coordinators, computer support managers, education directors, engineers, executive management, accounting managers, budget and the list goes on…………not including the health insurance contribution and retirement plan contributions.
I think you might be surprised the number of state or state funded employees that earn more than $100,000 a year, even more when you add benefits. Greg may not be as far off as you think.
And likely all of the UW VP’s. And many at the Dean/Director’s level. …The UW Basketball coaches. Many professors make six figures: Freudenthal, McGinty before he became president, etc. And the Community College Presidents, many of the Community College VP’s. And Directors of many of the various agencies: DOT, Game & Fish, etc. And most of the school district superintendents.
I agree a majority make $50,000 or less, but there are many more than the UW President and Football coach that make six figures.
I was surprised Greg pulled that number, but I’m sure it was just for the easy math. He’s a history major, you know.
Thanks for this story. Just to be clear: only a very few state employees make $100,000 a year or more. There’s the football coach and the UW president (and ex-president) and a few others. For the majority of public employees, especially those making well under $50,000 annually, this approach offers at least a little gain in take-home pay.