The WRS

1
The WRS Planning for Retirement

• Joint Presentation by
• Rose Stephenson Nicole Zimm
• Benefit Policy Analysts with UW System
  Administration

2
Topics Covered in Presentation

• What is the WRS?
• Financial Health of WRS
• Core Fund vs. Variable Fund
• Two types of annuity calculations
• Effects of Variable Fund participation
• Effects of current market downturn on WRS account
• How to Cancel Variable Fund Participation
• Retirement planning
• Cost of retiree health insurance
• Sick leave credit program
• What happens to benefits in retirement
• Resources

3
What is the WRS?

• The WRS was created to provide retirement income
  to retired public employees.
• Administered by the Department of Employee Trust
  Funds (ETF)
• Investments managed by the State of Wisconsin
  Investment Board (SWIB)
• For most employees, 10.4 of gross wages, up to
  IRS maximum, contributed to WRS to fund future
  benefits (11.5 for executives). UW pays total
  contributions on behalf of the employee the
  employee pays nothing.
• UW contributes 0.8 of gross wages to fund
  retiree health insurance.
• Immediately vested

4
Financial Health of the WRS

• WRS is solvent, well-funded, has a diversified
  investment portfolio, is focused on long-term
  investing and will provide promised benefits.
• State statute guarantees payment of benefits
• 9th largest public pension fund in U.S. and 24nd
  largest fund in the world
• The purpose of the WRS is to aid public
  employees in protecting themselves and their
  beneficiaries against the financial hardship of
  old age, disability and death. When investment
  returns are lower than expected, contribution
  rates are increased to assure that the necessary
  funding will be available to pay the promised
  benefits.
• The recent market downturns are unprecedented but
  over the long-term, the markets should right
  themselves.
• Employees can be assured that the WRS will be
  there for them in the future, despite the current
  economic downturn.

5
The Core Fund

• Core Fund is well-diversified
• 55 in stocks
• 29 fixed income
• 16 private equity, real estate, multi-asset
  holdings
• All contributions invested in Core Fund unless
  you elect to participate in the Variable Fund.
• Interest credited once per year based on 12/31
  investment returns
• Market gains/losses recognized evenly over a five
  year period to keep interest crediting -
  contribution rates and annuity dividends more
  stable. The 2008 preliminary return of -26.2
  will be realized over the next five years.
• Due to smoothing mechanism, 2008 interest rate is
  expected to be 3 - 3.5 and 2009 annuity
  adjustment is expected to be -2.5 to -3.
• Due to historical market losses in 2008,
  annuitants in the Core Fund are projected to
  receive an annuity reduction for the first time
  ever.

6
The Variable Fund

• Variable Fund is composed wholly of stocks
• 69 domestic stocks
• 30 international stocks
• 1 multi-asset category
• If enrolled in Variable Fund, half of WRS
  contributions credited to Variable Fund and half
  credited to Core Fund.
• Interest is credited once per year but there is
  no smoothing mechanism as in the Core Fund.
  Investment returns are fully recognized each
  year.
• 2008 preliminary investment return is -39. Full
  value of losses will be recognized by current WRS
  employees and annuitants in Variable Fund.

7
The WRS has weathered pastmarket downturns
CORE FUND HISTORICAL RETURNS
8
The WRS has weathered pastmarket downturns
VARIABLE FUND HISTORICAL RETURNS
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Definitions

• WRS Annuity monthly check that you will receive
  in retirement for the rest of your life.
• Minimum Retirement Age earliest age that you
  can receive a WRS retirement benefit age 55
  (general/teacher) or age 50 (protective)
• Years of Creditable Service amount of WRS
  service based on number of hours worked in a
  year.
• Classified employees service reported on
  calendar year basis
• Unclassified employees service reported on
  fiscal year basis
• Seniority/Continuous Service Date date you
  began state/UW employment (adjusted for breaks in
  service) used to determine value of sick leave
  credits.
• Formula vs Money Purchase Calculations 2
  methods used to calculate retirement annuity.
• Age Reduction Factor factor used to reduce
  formula calculation if you retire before normal
  retirement age of 65. There is no age reduction
  factor if you retire at 65 or later or if you are
  age 57 or later with 30 years of creditable WRS
  service.

10
Two Types of Retirement Calculations

• At retirement, annuity is calculated under two
  methods you receive the higher
• Formula calculation based on the following
• Final Average Earnings (FAE)
• FAE Total of highest 3 yrs of earnings Total
  WRS service during those 3 years 12
• Years of creditable WRS service
• Formula factors based on employment category
• Age reduction factor based on age at retirement
  and years of service
• Formula benefits capped at 70 of FAE
• Formula calculation method
• Years of Service x FAE x Formula Factor(s) x
  Age Reduction Factor

11
Two Types of Retirement Calculations

• Money Purchase calculation based on the
  following
• Total dollar amount of WRS account at retirement
• Employee matching employer contributions
  interest
• Money purchase factor based on age at retirement
• Money Purchase Calculation Method
• Money Purchase Balance at Retirement x Money
  Purchase Factor
• You can see which calculation type is currently
  higher for you if you look at the bottom of the
  last page of your ETF Annual Statement of
  Benefits.

12
How does Variable Fund participation affect my
annuity calculation?

• Formula Calculation
• Your retirement annuity is calculated under the
  formula method and is adjusted upwards or
  downwards depending on whether or not you have a
  variable excess or deficiency.
• Variable excess the total value of your WRS
  account is bigger than it would have been if all
  of your money was in the Core Fund.
• Variable deficiency the total value of your WRS
  account is smaller than it would have been if all
  of your money was in the Core Fund
• Money Purchase Calculation
• The portion of your account in the Variable Fund
  is credited with variable interest. If there is
  a low or negative variable interest rate, it will
  reduce the total value of your WRS account
  therefore, your money purchase calculation will
  be lower at retirement.

13
How do low/negative interest rates affect my WRS
account and retirement annuity calculation?

• If never participated in variable and annuity is
  higher under formula calculation ? no effect on
  annuity calculation.
• Formula calculation not dependent on market
  fluctuations.
• If you canceled variable participation and
  annuity higher under formula calculation, annuity
  will be adjusted according to variable excess or
  deficiency.
• Lower interest rates lower account balance so
  all benefits based on total value of WRS account,
  will be lower.
• Money purchase annuity calculation based on
  account balance so calculation will be lower when
  there are poor investment returns.

14
If Im in the Variable Fund, can I cancel
participation?

• Three Variable Fund Cancellation Options
• Cancel unconditionally Effective January 1st of
  the year after ETF receives cancellation form,
  all new contributions are credited to the Core
  Fund. After core and variable interest is
  applied for the year in which ETF received the
  cancellation, variable balance is transferred to
  Core Fund. A residual variable
  excess/deficiency balance is recorded and is
  increased each year by the annual core effective
  interest rate until retirement. If you cancel
  with a deficiency, the deficiency will become
  larger in any year that there is a positive core
  interest rate.
• Cancel conditionally Effective January 1st of
  the year after ETF receives cancellation form,
  all new contributions are credited to the Core
  Fund and core and variable interest is applied
  for the year in which ETF received the
  cancellation form. Existing variable balance is
  not transferred to Core Fund until variable
  balance equals or exceeds amount that would have
  been in account if the participant had never been
  in Variable Fund.
• Cancel future contributions only Variable funds
  stay in variable, but all new contributions after
  January 1st after the year that ETF receives the
  cancellation form are credited to the Core Fund.

15
Things to consider before canceling Variable Fund
participation

• If in variable, how many years do you have to
  recover losses?
• Stay in variable and ride it out
• Cancel conditionally and end participation once
  there is no longer a deficiency on account
• Cancel unconditionally but current deficiency
  will grow over the years if there is positive
  core interest.
• Cannot know whether or not its prudent to cancel
  Variable participation
• If you cancel unconditionally and there are high
  returns next year, you wont benefit
• If you cancel conditionally, how long will it be
  before you break even? Also risk of future
  losses.
• What goes down, will most likely come back up
  when markets improve. You must decide your own
  income needs and risk tolerance.

16
How and when will I know how the 2008 returns
affected my personal WRS account?

• ETF is scheduled to release the final interest
  crediting numbers in late February/early March.
• In April, you should receive your annual ETF
  Statement of Benefits.
• This statement will show your January 1, 2009 WRS
  account balance that will include 2008 interest
  crediting.
• If you are in the Variable Fund, you will also
  see an updated variable excess or deficiency.
• If your account is large enough to provide a
  monthly annuity at retirement, there will be
  retirement estimates on the final page of the
  statement. These estimates may have decreased
  since last years statement if you participate in
  the Variable Fund.

17
What do I need to do to begin planning for
retirement?

• Retirement planning depends on how close you are
  to retirement reference the Roadmap to
  Retirement.
• Understand your retirement income sources
• For a career public employee who retires at
  normal retirement age, the WRS and Social
  Security will replace 50 85 of pre-retirement
  gross income
• Increase or begin Tax-Sheltered Annuity and/or
  Wisconsin Deferred Compensation contributions to
  supplemental retirement income
• Individual Retirement Accounts (IRA) Traditional
  or Roth
• Retirement plans from other employers
• Post-retirement employment
• Understand the cost of retiree health insurance
  and how long your sick leave credits used to pay
  for retiree health insurance will be expected to
  last in retirement.

18
How do I select a retirement date to maximize my
benefits?

• If your annuity is higher under money purchase
  calculation, maximize interesting crediting.
• If you term on or before December 30th, will
  receive a prorated percentage of 5 interest on
  account for that year.
• If you term December 31st or later, will receive
  the effective interest rate(s) for the prior
  year.
• If you are paid on a fiscal year basis and
  annuity is higher under formula calculation,
  consider retiring just after the end of the
  fiscal year to maximize final average earnings.
• If you retire on or after official
  seniority/continuous service date, you may be
  eligible for additional sick leave credits to
  fund retiree health insurance.
• Usually the longer you wait to retire, the better
  ? due to increased service, earnings,
  contributions, lower age reduction factor and
  higher money purchase factor.

19
Is there anything I can do to increase the value
of my WRS annuity?

• How do I increase formula calculation
• If the option is available to you, increase your
  3 highest years of earnings
• Work overtime
• If 9 month employee summer salary
• Become department chair
• Anything you can do to increase your earnings
  will increase formula benefit
• Purchase qualifying, forfeited or other
  governmental service
• May be eligible to receive additional service for
  active military service prior to 1974
• How do I increase money purchase calculation
• Increase earnings so more money is credited to
  your account (10 of salary)
• Select a retirement date to maximize interest
  crediting

20
How can I obtain an estimate of my retirement
annuity?

• There is an online retirement calculator on ETFs
  website http//etf.wi.gov/calculators/disclaimer
  .htm
• You can use the information from your ETF
  Statement of Benefits to help you complete the
  information needed for the calculator
• You must project future service and earnings
  yourself calculator does not project future
  interest, service or earnings.
• You can request an official estimate/application
  from ETF once per year and the estimate must be
  for a retirement date of no more than one year in
  the future.
• Can contact ETF at 1-877-533-5020 to request an
  estimate/application

21
Sample retirement annuity estimate
Employees DOB 5-1-1950 Spouse DOB 1-1-1948
Retirement Date 7-2-2009 Yrs of Service before
2000 15 years Yrs of Service After 1999 9.5
years 3 Highest Yrs 75,000, 72,000, 69,000
Money Purchase Balance 245,000
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How will poor investment returns affect me when
Im retired?

• Once retired, on May 1st of each year, annuity
  may be adjusted upwards or downwards, depending
  on investment returns.
• In Core Fund Only
• 1st annuity adjustment is pro-rated based on
  number of full months annuity was in force during
  the year it began.
• If there is a negative Core adjustment, Core
  annuity cannot fall below the finalized original
  amount.
• In Variable Fund
• Always receive full annual adjustment never
  pro-rated, even in first year after retirement.
• If there is a negative Variable adjustment,
  variable portion of annuity can be reduced below
  the finalized original amount. There is no limit
  on the amount it can be reduced.
• Annuitants can cancel variable participation
• Core and Variable annuity adjustments are
  cumulative.

23
Sample of how an annuity is affected by annual
annuity adjustment
24
How does retiree health insurance affect my
decision to retire?

• Must pay total monthly health insurance premium
  for coverage in retirement
• Sick leave balance at retirement is converted to
  a dollar amount to pay for State Group Health
  Insurance premiums only.
• Once sick leave account is exhausted, premiums
  can be deducted from annuity. (Premiums deducted
  from annuity are pre-tax.) If annuity is not
  large enough, premium can be paid directly to
  carrier.
• 2009 Median Monthly Premium for HMO coverage
  (under age 65 non-Medicare eligible)
• Single 613.30
• Family 1,529.60
• 2009 Median Monthly Premium for HMO coverage
  (Medicare eligible)
• Single 404.35
• Family coverage with 1 person under Medicare
  1,018.40
• Family coverage with 2 people under Medicare
  806.20
• 2009 Medicare Part B premium 96.40/month for most

25
How do I know the value of my sick leave at
retirement?

• Sick Leave Conversion Credit Program
• Sick leave balance at retirement is multiplied by
  highest hourly rate while in state or UW service.
• If unclassified, can determine hourly rate by
  dividing your highest base salary by either 9 or
  12 months (depending on your employment contract)
  and then dividing by 174 hours.
• Example 75,000 12 months 174 hours
  35.92/hour
• If you have at least 15 years of continuous
  service, you are eligible for supplemental sick
  leave credits
• 52 hours per year for years 1 24
• 104 hours per year for year 25 and beyond
• Not eligible for supplemental credits if you are
  covered by the CRAFTS bargaining unit
• Protective employees earn supplemental credits at
  a different rate

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Sample Sick Leave Credit Calculation
Highest Hourly Rate 38.314 Sick Leave Balance
at Term 2,000 hours Years of Continuous
Service 26
Note Total hours of supplemental sick leave
credits granted can NEVER exceed actual sick
leave balance at time of retirement.
27
If I retire before Im Medicare eligible, how
much will health insurance cost?
28
If I retire when Medicare eligible, how much will
health insurance cost?
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How can I maximize my sick leave credits at
retirement?

• Minimize your sick leave usage - you are not
  required to use sick leave for an illness,
  doctors appt.you can substitute other paid
  leave.
• Maximize your base pay rate - if you know there
  is an upcoming raise, wait to retire until you
  receive the raise.
• Work longer - the longer you work, the more sick
  leave you accrue. If you wait until age 65 to
  retire, your health insurance premiums will be
  lower due to Medicare eligibility so your sick
  leave credits will last longer.
• Carry a family health insurance policy if married
  to another state/UW employee who earns sick leave
  - when married state employees retire AND carry a
  family health insurance policy, can use both sick
  leave credit accounts to pay for retiree health
  insurance. If one spouse dies, the other will
  have access to the spouses credits to pay own
  health insurance premiums as long as a family
  policy was in effect at the time of death.

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What happens to my benefits at retirement?

• Health insurance automatically continues
  premiums paid by sick leave credits until
  exhausted. If you have comparable health
  insurance coverage, you can escrow your sick
  leave credits until you need them.
• State Group Life automatically continues (if
  eligible) premiums taken from annuity until age
  65 no premium due once you turn 65. Coverage is
  reduced to 75 of basic at age 65 and 50 at age
  66 . Even though this is term insurance, your
  beneficiaries will receive a benefit ½ of your
  highest salary.
• Spouse and Dependent coverage ends at retirement
  can convert to an individual policy at a higher
  premium
• Income Continuation Insurance ends at
  retirement
• (More next page)

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Benefits at Retirement

• OptumHealth Vision, Anthem DentalBlue, EPIC
  Dental Excess Medical, UIA Life Insurance, ADD
  Life Insurance can continue indefinitely in
  retirement through direct payment to carrier
  continuation forms available from staff benefits
  office.
• Individual and Family Group Life and UW Employees
  Inc. Life can be converted to an individual
  policy but premiums are much higher conversion
  information available from staff benefits office.
• CAUTION All continuation/conversion
  applications must be submitted on a timely basis
  or the right to continue/convert coverage will be
  lost.
• Evaluate the level of life insurance you need as
  you age.

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Resources
UW Systems information about the WRS and the
market downturn http//www.uwsa.edu/hr/benefits/
retsav/wrsdownturn.html SWIBs main page
(review investment earnings) http//www.swib.stat
e.wi.us/ ETFs main page http//etf.wi.gov/ind
ex.htm Market Volatility and Your WRS Benefits
(ETF website) http//www.etf.wi.gov/news/market_
volatility.htm UW Systems retirement page
http//www.uwsa.edu/hr/benefits/retsav/ Sick
Leave A Valuable Benefit for All Employees
http//www.uwsa.edu/hr/benefits/leave/sickleave.pd
f UW Systems main benefits page
http//www.uwsa.edu/hr/benefits/
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The WRS Planning for Retirement

• Questions?
• Contact a Benefits Specialist at UW-Green Bay