Wisconsin’s new shared revenue law, that also includes reforms for Milwaukee’s pension system, is both helping and hurting the city’s retirement system.
The Legislative Audit Bureau is out with a new report on Employees’ Retirement System of the City of Milwaukee that shows a spike in Milwaukee’s pension liability and some very sloppy paperwork.
“As of December 31, 2023, the Retirement System reported a net pension liability. The Retirement System had a fiduciary net position restricted for pensions of $5.7 billion and a total pension liability of $7.8 billion, which resulted in a net pension liability of $2.1 billion,” the auditors wrote. “This represents a $536.6 million increase from the net pension liability reported as of December 31, 2022.”
Part of the gap is that the city of Milwaukee, Milwaukee Public Schools, the Milwaukee Metropolitan Sewerage District, and the Wisconsin Center District all have money that has not yet been designated for pension payments. But some of that gap is because of reforms in the shared revenue law, known officially as Act 12.
“The primary cause of the increase in the net pension liability in 2023 was the decrease in the discount rate used to determine the total pension liability from December 31, 2022, to December 31, 2023, as required under Act 12,” the audit notes.
While the liability gap soared last year, pension payments increased by a moderate amount.
“The amount of pension benefits provided to retired members or their beneficiaries as annuity payments increased from $452.4 million in 2022 to $466.6 million in 2023, or by 3.1 percent,” the audit states. “The average annual benefit payment increased from $32,560 in 2022 to $33,601 in 2023, or by 3.2 percent.”
Act 12 was designed to help Milwaukee deal with its pension debt. In addition to allowing the city of Milwaukee to add a new, 2% citywide sales tax, the new law banned any “increases or enhancements” for anyone in the Milwaukee Retirement System after December 31, 2003.
Act 12 also moved all new Milwaukee employees to the state’s pension system.
Still the audit uncovered a number of problems, particularly in the retirement system’s record keeping.
“We found that Retirement System staff did not properly classify certain investments in its note disclosures. For example, investments categorized as level three were overstated by $549.6 million and uncategorized investments were understated by $549.6 million. In addition, we found that in calculating the net pension liability, Retirement System staff erroneously included the fiduciary net position of the Employers’ Reserve Fund. The net pension liability was understated by $85.1 million,” auditors wrote.
The audit also found the retirement system managers “erroneously included the fiduciary net position of the Employers’ Reserve Fund in the calculation of the ending net pension liability in the employer schedules.”
That ended with the “ending net pension liability was understated by $85.1 million and the total deferred outflows of resources and the total deferred inflows of resources were each overstated by $395.2 million.,” according to the report.
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