alternatives for administering the wisconsin retirement system current policy versus total...
TRANSCRIPT
Alternatives for Administering the Wisconsin Retirement System
Current Policy versus Total Retirement Outsourcing
Prepared for the Wisconsin Legislative Council
Bethany AckeretHope Harvey
Daniel KleinmaierNoah Natzke
Susanna Rasmussen
Agenda
• Project Summary• Overview of Wisconsin Retirement System• Privatization Definition• Policy Alternatives• Analysis of Alternatives• Recommendation
Agenda
Project Overview & Aims
• Question: Should the WRS be privatized? • Analysis of two options:
– Current WRS policy– Complete outsourcing of WRS to private firm
• Complement to the forthcoming report on a defined contribution option
Project Summary
Structure of the WRS
Wisconsin Retirement System
State of Wisconsin Investment
Board (SWIB)
Department of Employee Trust Funds
(ETF)
Provides day-to-day benefits administration for WRS
Manages invested retirement system assets
Framework for Decision-Making
• The WRS is a trust• State statutes dictate that ETF and SWIB
board members are fiduciaries of the trust• Must enact management decisions that
result in the lowest responsible cost• Decisions regarding privatizing functions are
dictated by this responsibility
ETF: Summary• Retirement, health, life, income continuation
and long-term disability benefits• Duties:
– Collects retirement funds; remits to SWIB– Calculates disbursement of payments– Provides information to participants and
employers
SWIB: Investment Strategy and Approach
• Board of Trustees establishes investment policy
• Day-to-day investment decisions must fall within the parameters of the policy
• Day-to-day decisions made by SWIB in-house professional investors or external private firm professional investors
Levels of Assets Invested by SWIB In-House Investors
• 2007: 21% invested by SWIB investors• 2009: 41% invested by SWIB investors• 2010: 47% invested by SWIB investors• Increase in internal investment
resulted in estimated net annual savings of $13 million in 2010
Source: State of Wisconsin Investment Board, 2011
CEM Benchmarking, Inc. Evaluation
• The WRS Core Fund five-year total return of 5.0 percent was above the peer median of 4.5 percent
• The WRS Core Fund had a lower cost than peers by 17 basis points on average (without adjusting for asset mix differences)Hopkins, 2011
Privatization Definitions
• Scaling back of direct government action• The expansion of subsidies for private
insurance, savings, and charitable activities • Use of vouchers that provide opt-out
alternatives for the public service• Expansion of government contracting
Policy Alternatives
1. Piecemeal Outsourcing (current policy)2. Total Retirement Outsourcing:
Contracting with a single private sector firm to administer the WRS
Piecemeal Outsourcing• SWIB outsourced 52.7 percent of investment
in 2010 (currently approximately 45%)
• ETF outsources administration of IT services and actuarial services
Internal External
47.3%52.7%
Internal External
88.7%
SWIB Management Costs SWIB Asset Management
11.3%
Reasons for State Privatization (1998-2002)
0%
10%
20%
30%
40%
50%
60%
70%
Political LeadershipIncreased Innova-
tion
High Quality Service
Speedy Implemen-
tation
Flexibility
Expertise
Cost Savings
Reason for Privatization
Perc
enta
ge o
f Res
pond
ing
Stat
es
Source: Chi, Arnold, & Perkins, 2004
Reduce Costs
GOALS Impact CategoryCurrent Policy:
Piecemeal Outsourcing
Total Retirement Outsourcing
REDUCE COSTS
Profit Motive Costs Excellent Poor
Competition Fair Poor
Economies of Scale Fair Good
Transition Costs Excellent Poor
Enhance Service
GOALS Impact CategoryCurrent Policy:
Piecemeal Outsourcing
Total Retirement Outsourcing
ENHANCE SERVICE
Level of Service Good Poor to Fair
Level of Accountability and
ControlExcellent Poor
Risk Minimization Excellent Fair
Economic Impact
GOALS Impact CategoryCurrent Policy:
Piecemeal Outsourcing
Total Retirement Outsourcing
ECONOMIC IMPACT
Employment Effects Good Poor
Distributional Effects Good Fair
Feasibility
GOALS Impact CategoryCurrent Policy:
Piecemeal Outsourcing
Total Retirement Outsourcing
FEASIBILITY
Political Feasibility Excellent Poor
Legal Feasibility Excellent Fair
Recommendation
• Our report demonstrates superiority of Current Policy
• Reduced costs, level of service, economic impact, and feasibility ranked lower for Total Retirement Outsourcing
• Current WRS lauded as low-cost, high-performance
For further information
Contact the La Follette School’s publications office at 608-263-7657 or [email protected]
Or see www.lafollette.wisc.edu/publications/workshops.html
Thank you!
Policy Alternatives in terms of
Policy Goals
GOALS Impact CategoryCurrent Policy:
Piecemeal Outsourcing
Total Retirement Outsourcing
REDUCE COSTS
Profit Motive Costs Excellent Poor
Competition Fair Poor
Economies of Scale Fair Good
Transition Costs Excellent Poor
ENHANCE SERVICE
Level of Service Good Poor to Fair
Level of Accountability and Control Excellent Poor
Risk Minimization Excellent Fair
ECONOMIC IMPACT
Employment Effects Good Poor
Distributional Effects Good Fair
FEASIBILITYPolitical Feasibility Excellent Poor
Legal Feasibility Excellent Fair