Opinion ID: 2151564
Heading Depth: 2
Heading Rank: 4

Heading: Actuarial Assumptions

Text: ถ 49. As noted above, employer required contribution rates, expressed as a percentage of payroll, are determined as part of each annual actuarial evaluation of the WRS. One of the actuarial assumptions considered is the assumed rate, defined in Wis. Stat. ง 40.02(7). [139] The statutory assumed rate was initially set at 7.5 percent, although, as authorized, the ETF Board changed the assumed rate to 8 percent in 1992. [140] Act 11 amends ง 40.02(7) so that the new statutory assumed rate is 8 percent. [141] Another actuarial assumption is the assumption for across-the-board salary increases. [142] This assumption, also set out in ง 40.02(7), has been statutorily set at 1.9 percent less than the assumed rate. [143] However, as authorized, the ETF Board has revised the across-the-board salary assumption several times, moving it to 4.8 percent in 1998. [144] Act 11 amends the 1.9 percent in ง 40.02(7) to 3.4 percent. [145] This produces a statutory assumption for across-the-board salary increases of 4.6 percent (8 percent less 3.4 percent). [146] ถ 50. Both of these actuarial changes may affect employer and employee required contributions. [147] Nonetheless, the ETF Board retains the authority in Wis. Stat. ง 40.02(7) to change the rates due to changed economic circumstances when the actuary so recommends. Moreover, Act 11 provides, in a non-statutory provision (Section 27(3)) that: Notwithstanding any provision in this act, the employee trust funds board shall retain the authority to maintain proper actuarial funding of the Wisconsin retirement system. ถ 51. For purposes of this litigation, the present unfunded liability for all employers totals approximately $2.2 billion. [148] In the past, the unfunded liability of employers has been recalculated following adjustments to the actuarial assumptions that govern overall funding requirements for the WRS. [149] In 1989, when the actuary recommended (and the ETF Board approved) changing the assumed rate from 7.5 percent to 7.8 percent, the DETF recalculated the remaining unfunded liability using the new assumed rate. [150] As a result, the aggregate unfunded liability of all employers as carried on DETF's books, was reduced by $90,589,521. [151] In 1991, when the actuary recommended (and the ETF Board approved) changing the assumed rate from 7.8 percent to 8.0 percent, the DETF recalculated the remaining unfunded liability using the new assumed rate. [152] As a result, the aggregate unfunded liability of all employers as carried on DETF's books, was reduced by $59,477,500. [153] No legal challenge to these actions was made. [154] In 1994, when the actuary recommended (and the ETF Board approved) changing the across-the-board salary increase assumption from 5.6 percent to 5.3 percent, the DETF recalculated the remaining unfunded liability of employers, using the new salary increase assumption. [155] As a result, the aggregate unfunded liability of all employers as carried on DETF's books was reduced by $85,117,420. [156] No legal challenge to this action was made. [157] ถ 52. In February 1998, however, the Secretary of DETF asked the Attorney General whether the ETF Board had authority to adjust unfunded liability, to reflect later adjustment to actuarial assumptions. [158] On January 15, 1999, Assistant Attorney General Jane Hamblen replied on behalf of the Attorney General, stating that there was no statutory authority for the ETF Board to adjust the unfunded liability balance of employers even when the WRS actuary subsequently recommended changes in the actuarial assumptions that were used when the initial unfunded liability balance was determined. [159] Since receipt of this reply, the ETF Board has not made any recalculations of the unfunded liability balance. [160] ถ 53. Act 11 authorizes DETF to adjust the unfunded liability balance of the WRS and of each employer to reflect changes in certain assumptions used to value the liabilities of the WRS, if the actuary recommends and the ETF Board approves the changes. [161]