Privatizing the Wisconsin Retirement System (WRS) is another possible attack by Governor Walker and his Koch Brother allies. Nothing concrete has been proposed so far, but a small section in last year’s budget bill sets up a study commission that can recommend changes in the current system.
We don’t know the details of the Walker plan. He’s keeping it secret, just like he kept his attack on public workers secret until he was ready to spring it in the legislature in 2011. But we have a pretty good idea what the Walker plan would look like, because we have seen what his political allies have done in other states. Here’s what they mean by privatization:
- Switch to 401-K plans. People could take their money out of the general fund, and keep it in a separate 401-K account. Their pension would come from the 401-K. This could seriously weaken the WRS. 401-k plans are a high- risk way to plan your retirement income, and a poor substitute for a real defined benefit pension system like WRS. Also, 401-K style plans are administered by private firms which will charge you more than the WRS.
- Allow people to drop out of the pension system completely. Many younger workers who already have trouble making ends meet might choose drop out of the pension system. They would not get a pension when they retire, and they wouldn’t be part of WRS. If a lot of people drop out, this would weaken the ability of WRS to pay existing pensions.
In a privatized pension you would have to invest your money yourself or pay for an investment broker to do it for you. If you make a bad investment, you could lose your nest egg. In the current Wisconsin Retirement System, everybody’s pension contribution is pooled in one large fund. We can hire the best fund mangers to run the WRS. And we can get the best return with the least amount of risk.
The way WRS works, there is always a stream of money coming into the fund, from the contributions of workers covered by the fund, and from investment income….and a steady stream going out, that is paid in pensions to retired workers.
The WRS is one of the most stable and prosperous pension plans in the U.S. because we pool our money together, it gives us financial clout when we make investments, so we get the best return on our money, and can pay decent pensions out of those returns. It also makes our fund STABLE. Because we have a large pool of money, we can spread it around and invest in different areas of the economy. We don‘t put all our eggs in one basket. Result? WRS investment income is reliable from year to year.