County retirees could lose cost-ofliving increases

County’s unfunded pension liability growing

A Milwaukee County pension reform task force has recommended the possible elimination of 2% annual cost-of-living increases now added to thousands of retirees’ pension payments at a cost of up to $20 million a year.

The proposal comes as the county’s unfunded liability for the pension commitments it already has made to retirees and current employees has swelled to at least $550 million this year, officials said.

In response, the county’s annual pension contribution — a total of the year’s general pension system operating costs and an amount for the unfunded liability — has steadily increased in recent years from $27.4 million in 2012 to $72.6 million this year,

budget documents show.

The portion of the payment designated for the unfunded liability alone has grown from $10.23 million in 2012 to $53.23 million in 2018.

The task force appointed last year by County Executive Chris Abele also recommended that employees hired in the future should be covered by the Wisconsin Retirement System, rather than the long-troubled and error-prone county pension system.

The task force further recommended the county study moving recently hired employees who are not yet vested in the county pension system to the state, as well. The task force approved the recommendations Tuesday and will forward the proposals to Abele and the Milwaukee County Board. Wisconsin Policy Forum President Rob Henken led Tuesday’s discussion.

Moving future employees and those recently hired to the state retirement plan would cost $10 million to $15 million, county administrative services director Teig Whaley-Smith said Tuesday.

That expense could be covered by the $20 million in savings resulting from cutting the 2% annual cost-of-living increases automatically given to retirees, Whaley-Smith said. Remaining savings could be plowed back into the unfunded liability, task force members said Tuesday.

The task force recommends cutting the cost-of-living increases, known as a COLA, until 2036, the date targeted by the county for fully funding its pension liabilities.

Supervisor James Schmitt, chairman of the board’s finance committee, said he supports the recommendations.

“When I took office seven years ago, I inherited a county pension system that was unwieldy, underfunded and unsustainable,” Abele said Wednesday. “At the same time, I recognized — and still do — the vital importance of protecting the pension fund for our retirees and of ensuring everyone receives the benefits they are entitled to.”

The county’s Employee Retirement System is on the brink of a financial crisis because of the growing unfunded liability, Abele has said.

The majority of the $550 million liability comes from lower-than-anticipated earnings from pension fund investments, records show. The hole has grown as the pension budget projected high returns each year that were not met. In response, the county will lower its projected rate of return on investments to 7.75% in 2019 and it might go lower.

Benefit changes, too, such as the controversial and costly backdrop payment opportunity that is no longer offered to new hires, deepened the hole, officials said.

Backdrops are lump-sum payments made to county employees who agreed to work past their earliest retirement date.

Those employees, in exchange for the upfront payment at the time they retire, accept a small reduction in their monthly pension checks.

This perk has been paid out to more than 2,590 former county workers since 2001. The total tally exceeds $294 million. Ten former employees have received one-time backdrop payments of more than $1 million in addition to regular monthly checks. Six of those retirees formerly worked in the district attorney’s office.

Fully 1,050 additional employees might be eligible for a backdrop payment depending on when they decide to retire or if they choose to leave county employment before that time.

Abele requested an independent audit of the retirement services office in February 2017 and appointed the task force that summer following disclosure of thousands of pension errors.

County officials warned at the time that the overly complicated pension system — with more than 180 paths to benefit eligibility and a few thousand variations of retiree groups within those paths — will continue to cause errors.

A 2014 report to the IRS listed hundreds of errors estimated to cost the county $2.2 million to correct.

In 2016, the county paid $14 million to make up for pension underpayments to nearly 1,300 retirees. Those errors were included in a 2007 report to the IRS.

In February 2017, former retirement plan services director Marian Ninneman resigned after failing to correct an ongoing payment to one beneficiary that added up to $140,000 over several years.