How well are Milwaukee's public pensions funded?

New rules for reporting government pension data show that the Wisconsin Retirement System--which is a multi-employer pension fund providing benefits for many state and local government retirees--is one of the best-funded in the country. Milwaukee’s three pension systems, are not as healthy as the Wisconsin Retirement System, but they’re in relatively good shape at 87 percent funded on average. However, while the state of Wisconsin's pension plan is extremely well-funded at 103 percent, the state’s unfunded bills, including $1 billion of unfunded retiree health care benefits, total $9.1 billion, equaling $4,600 per taxpayer.

This is according to the nonprofit organization Truth in Accounting (TIA), which recently surveyed 237 municipal pension plans across the country and found disturbing news based on the new data being reported for 2015. For years, state and local governments have been underreporting their future liabilities--the cost of promised future benefits--and consequently, not sufficiently funding their pension systems. Thanks to the recent changes in reporting rules, the extent to which state and local pension systems are underfunded is finally coming out. However, the new reporting standard does not affect reporting of retiree health care debt, which is still left off the balance sheets. TIA’s study found 72 percent of these benefits were not included in 2015 reports.

State pension funds are set up to pay out benefits--defined dollar amounts based on an employee’s years of service and compensation while working--promised to government employees after they retire. The employers--state and local governments, agencies, or departments--pay into these funds during the years the employee works. Pension assets are the resources in a pension fund that are available to pay for the benefits promised to its retirees and their beneficiaries. The promised benefits are the “liabilities in the form of deferred compensation owed to the employees whom the plan covers.” Many pension systems are considered underfunded because the amount of promised benefits is greater than the plan assets. If the plan assets exceed the promised benefits, then the pension system is overfunded.

The newly collected data from TIA are available at its State Data Lab (SDL) where you can search by state to find statistics for both the state and local pensions, all of which are graded from A to F based on how well funded they are. As Terry Savage noted in a recent article in the Huffington Post, of the 237 plans studied for the 100 largest cities in the country, “29 received an “F” grade, reflecting a funding ratio of less than 35 percent. Those plans cover many thousands of workers who cannot possibly be paid their full promised pensions, absent a huge tax increase (which would also come out of their pockets as workers).” Each report for a city or state shows the total dollar amounts of plan assets, promised benefits, unfunded liabilities, and the funding percentage for each plan.

Since pensions are funded by employers (in this case, by the different government entities), they can differ greatly within a state. In Wisconsin there is a big difference between the state plan’s funding and some local pension funding. The Milwaukee County pension plan, for example, received a grade of D+, because it is only 76 percent funded, having $546.70 million in unfunded liabilities. The city of Milwaukee is doing better with a grade of B, but the transit system pension plan received a C for being 85 percent funded. The Wisconsin Retirement System was graded A+.

While Milwaukee does not have fully funded pensions, it is better off than many other large cities. In the country, the city of Chicago has the highest dollar amount of unfunded pension liabilities at $62 billion and is less than 35 percent funded. New York City comes in second with just over $61 billion of unfunded promises, but its pension systems are, on average, 71 percent funded. Unfortunately, if a state or local fund cannot meet its pension obligations, there is no backstop, such as private companies have in the Pension Benefit Guaranty Corporation, a U.S. government agency which will pay out a certain percentage of promised pension payments if a company goes bankrupt. If the states’ government pension systems can’t pay their bills, the taxpayers are once again on the hook--including the pensioners who are owed benefits.