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Back to Basic - I wanted to address some common topics, some of which came from the chatbox during our virtual townhall session in mid-September.
Investments are OK – While our investments certainly have been volatile during this year of COVID-19, the fund has large liquid assets, which make it possible to continue paying pensions for years before having to sell stocks. These liquid assets have allowed your investment team to buy good assets at good prices. Other components of the fund are designed to prosper in down markets. During good economic times, they are a drag on performance, but come into their own during times like March, 2020. In calendar year 2019, the fund returned 18.72% and the year-end total was just over a record $9 Billion. How 2020 will fare is to be seen, but the fund has rebounded. At present we are showing a positive return for the year in the low single digits. Our
long term goal is 7%, but if one earns 18.72% and then about 2%, that’s equivalent to two years of 10% return back to back – we’d celebrate that.
Your pension is safe – we’ve all read about Wyoming’s revenue issues and consequent government cutbacks. Ergo the pension can’t be raided to make up the shortfalls. It’s protected in the state constitution. Article 19, section 11 reads: “Use of monies in public employee retirement funds restricted. All monies from any source paid into any public employee retirement system created by the laws of this state shall be used only for the benefit of the members, retirees and beneficiaries of that system, including the payment of system administrative costs.”
Cost of Living Allowance (COLA) - The board recognizes that WRS hasn’t paid a COLA in our open plans in a long time, which creates increasing financial hardship on many retirees. Legislation adopted after the 2009 recession prevents WRS from recommending a COLA to the legislature until a plan reaches 100% funding. Funds are on track to eventually get there, but it is tough considering the revised planning assumptions of lower investment returns and increasing lifespans. Relief in the near term depends upon legislation that would pay for a COLA or otherwise modify the existing limitations. I know this is not a good answer, but we have to administer the plan according to the law and we have to respect what our actuarial analysis asserts.
Rule of 85 & Normal Retirement Age - This is confusing to a lot of folks, and understandably so – it gets complicated. Pension plans have their own concept of a “normal” retirement age. In the Public Employee Plan, Tier 1 has a normal retirement age of age 60, and in Tier II (hired after 1 September 2012) it is 65. You can retire earlier than normal, as early as the minimum retirement age (Tier I is age 50, Tier II is age 55), but the pension is reduced 5% per year for each year short of normal. So, for Tier I, one could draw a retirement benefit at age 58, but it would be two years shy of normal, and subject to a 10% reduction. The rule of 85 is a rule that provides an exception to the reduction. If your combination of age + years of service equals 85 or more, then the 5% reduction for “early” retirement is waived (i.e. age 58 with 27 years of service or more). The rule applies to those seeking “early” retirement – once you achieve normal retirement age for your plan, the rule doesn’t matter. So if you are in Tier 1 and age 62, the rule doesn’t matter anymore. If you are In Tier II, it still has applicability until you reach age 65, at which point then it doesn’t matter even for Tier II. As a reminder, we are talking about when you draw your retirement benefit, not necessarily when you quit work and “retire.” For example, in Tier II, you could quit working at age 64, defer drawing your benefit until age 65 and then you would be at normal age and not subject to the 5% reduction. So you can avoid the reduction by either achieving normal retirement age or by achieving rule of 85.
Finally, to make this even more complicated, there are different laws and rules for the other public safety and judicial plans.
The Wyoming Retirement System (WRS) provides a bi-annual newsletter.
The current edition is for Fall/Winter of 2020 and includes information on:
- Directors Report
- Board Says Goodbye to Longtime Member
- National Retirement Security Month
- Online Account Tips
- A Note From 457 Plan Manager
- How to Plan for Retirement at Every Stage