Alternatives for Administering the Wisconsin Retirement System by the La Follette Workshop in Public Affairs
The major focus of the report compares the current system, which already outsources some investments and administrative services to the private sector, with an alternative that would contract with the private sector to fully manage the WRS. The report assesses the potential gains and costs of these two alternatives in terms of the most relevant goals of a public pension system.
"The 2011-2013 biennial budget bill, Wisconsin Act 32, directed the Department of Employee Trust Funds, the Department of Administration, and the Office of State Employment Relations to investigate the structure of the WRS and the potential for establishing a defined contribution plan. That study is underway and will be completed by June 30, 2012. This report focuses on a related potential change to the WRS: maintaining the system’s benefits structure, but privatizing the system’s benefits administration and investment functions."
From the Executive Summary:
"We examine impacts around four major goals: minimization of costs, enhanced performance, positive economic impacts, and feasibility. We find that the internal investment that SWIB performs and the administration of benefits that ETF performs is less expensive than equivalent services would be in the private sector. Outsourcing SWIB and ETF’s functions would make the state dependent on a private firm and could result in higher prices or increased risk if the firm ceased operations while managing the WRS. Additionally, the risk minimization strategies and the level of accountability and public oversight of SWIB are advantageous in comparison to Total Retirement Outsourcing. Unlike private firms that have a profit motive, both ETF and SWIB function at cost. With the WRS publically managed by ETF and SWIB, any increase in efficiency benefits the WRS’s members and the state government. Finally, Piecemeal Outsourcing is the existing policy and therefore is politically feasible, whereas Total Retirement Outsourcing has poor political feasibility. We recommend the state continue the policy of Piecemeal Outsourcing, of only contracting out specialized services that cannot be performed in house as efficiently."
Link to entire report:
www.lafollette.wisc.edu/publications/workshops/2012/WRS.pdf