To understand the impact of Act 11 on your WRS account, you need to understand the two ways that your WRS retirement benefit is calculated. You automatically receive the higher of the two benefits when you retire.

Your Formula Benefit is the product of:

Your average monthly earnings in your three highest-salary years times

Your years of service under the WRS times

Your formula factor.

Obviously, when any one of these elements increases, the result also increases. (Notice that the dollar value of your retirement account does not matter in this calculation.)

Example: If you are a teacher or a general employee with 25 years of service and your final average monthly earnings are $4,000, your formula benefit (without Act 11) is:

$4,000 x 25 x .016 = $1,600.00* per month

*If you are younger than 65 when you retire or you want your annuity to include a death benefit for a joint survivor or beneficiary, this amount may be reduced.

o Your Money Purchase benefit is the product of:

Your employee retirement account value* plus a 100% match from the Employer Reserve times

An actuarial factor based solely on your age (and that of your joint survivor, if any).

An increase in either of these elements produces a higher benefit. (Notice that your final average earnings and your years of service do not matter in this calculation.)

*Your employee retirement account is equal to a statutory percent of your WRS earnings each year (5% in most cases) plus interest

Example: If you are age 65 and your employee retirement account is $125,000, your money purchase benefit is:

($125,000 + $125,000) x .00712 = $1,780.00* per month

*This amount would be adjusted downward if you want your annuity to include a death benefit for a joint survivor or beneficiary.

For more information, see "Calculating Your Retirement Benefits," brochure ET-4107, on the Department of Employee Trust Funds web site.

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1. How will Act 11 affect active employees?

Act 11 increases your retirement, separation, and/or death benefits from the WRS. To be eligible, you must be a participating employee (in pay status or on leave of absence) on the effective date noted.

a. Formula Improvement. Effective date: January 1, 2000

Your formula factor will increase by 0.165% for years of service prior to the year 2000. This increase only applies to pre-2000 service. The old formula factor will be used for service in 2000 and later. Your formula factor, multiplied by your years of service and your final average earnings, determines the amount of your formula retirement benefit (your pension).

Employment Category	Temporary Formula Factor for service in years before 2000	Permanent (old) Formula Factor for service in years after 1999	Percent Increase in benefit for service in years before 2000
Teachers and General Employees	1.765%	1.6%	10.31%
Executive Employees	2.165%	2.0%	8.25%
Protective Occupation Employees	2.165%	2.0%	6.60%

b. Effective Interest Rate Crediting. Effective Date: December 30, 1999

Before Act 11, if your service in the Wisconsin Retirement System began in 1982 or later, your account earned only 5% interest. Under the new law, all employee accounts will receive the "effective interest rate." This is the rate actually credited to WRS reserves each year. Historically it has been substantially higher than 5%, averaging 11.7% per year over the past 10 years.

o All employees who were actively employed or on leave of absence on December 30, 1999 will be credited with 24.1% interest on their January 1, 1999 WRS account balance.

o All employees who were actively employed at any time during the year 2000 will receive interest of 10.9% on their January 1, 2000 account balance.

o Employees hired on or after January 1, 2000 will receive the effective interest rate on their WRS account`in the future.

For long-term employees, the 5% interest cap was not necessarily a disadvantage. Except for periods of exceptional investment performance such as the late 1990's, the formula calculation usually produces a higher benefit than a calculation based on account value (the "money purchase" calculation). Nonetheless, some employees will benefit directly from the elimination of the cap:

o Before 2000, if you left WRS employment before retirement age, the interest cap slowed the growth of your account and substantially limited the benefit you received at age 55. For employees who terminate after 1999, removal of the cap means that their accounts will probably grow more rapidly and pay a higher benefit at age 55.

o If you terminate employment and withdraw your money before age 55 (age 50 for protective occupation employees), previous law granted you only 3% interest on your account. Removal of the cap means that your separation benefit will be larger.

o If your salary increases in your last years of employment are small, or if you drop from full-time to part-time in the last years before retirement, your formula benefit may not keep up with wage inflation. The money purchase benefit, based on effective rate interest, can be more advantageous for people in these situations. Removal of the interest cap gives you a better chance of receiving a money purchase benefit.

c. Reopening of the Variable. Effective Date: January 1, 2001

Active employees have the option to invest 50% of their future WRS contributions in the Variable Trust beginning in the year 2001.

The Variable Trust is invested by the State Investment Board. It was closed to new participants in 1980 due to complaints about the poor performance of the Trust in the late 1970s. About 96% of the Variable Trust is invested in the domestic and international equities (stock) market. By contrast, the Fixed Trust is about 60% stocks and 40% bonds, cash, and loans. The Variable Trust is more volatile than the Fixed Trust, but over time it has averaged a higher return and could be an attractive investment for some employees.

For more information, see "Should I join the Variable Trust," a slide presentation on the web.

d. Improved Death Benefit. Effective Date: December 30, 1999

Your heirs could receive a higher death benefit under the new law.

If you die before beginning a retirement or WRS disability annuity, previous law restricted your death benefit to the value of your employee retirement account only. With minor exceptions, the employer match was not included. Active employees who were over minimum retirement age (age 55, or 50 for protectives) at death and whose beneficiary was a spouse or dependent child had a "special death benefit"--a life annuity or lump sum equivalent that roughly equaled two times the employee retirement account value.

Act 11 removes both the age cliff and the requirement that your beneficiary must be a spouse or dependent child. Any beneficiary of an active employee who is in pay status or on a leave of absence at death will receive a death benefit equal to two times the employee retirement account. If the employee is over age 55 (or 50 for protectives) at death, his or her beneficiaries will receive the special death benefit if it is more valuable. (To receive the special death benefit, a beneficiary must be a natural person or a trust in which a natural person has a beneficiary interest. If your beneficiary is a charity or your estate, it is not eligible for the special death benefit.)

e. Increase in Limit on Formula Benefit. Effective Date: January 1, 2000

Under previous law, your formula benefit was capped at 65% of your final average earnings. (Money purchase benefits are not affected by the limit.) Act 11 raised this limit to 70% for employees other than protective occupation employees. Few employees reach the limit because it requires many years of service. Thus this improvement is significant only for employees whose benefit is based on the formula (not the money purchase calculation) and who retire with more than about 37 years of creditable service (30 years for executives).

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2. I participate in the Variable. Will Act 11 affect my variable benefit?

There may be an indirect impact. Before you retire, your variable account balance is influenced solely by the investment performance of the Variable Trust. After you retire, you receive the variable investment increase or decrease on the portion of your pension that is invested in the Variable Trust. Act 11 does not affect these arrangements.

However, if you invest in the Variable and begin a formula benefit, your pension will be increased (decreased) by the money purchase value of your "variable excess" ("variable deficiency"). Your variable excess/deficiency is the difference between your actual account value and the amount your account would have earned had it been 100% invested in the Fixed Trust.

Act 11 resulted in an unusual increase in the 1999 Fixed Fund interest rate. In turn, the difference between Fixed and Variable earnings decreased, resulting in a decrease in your variable excess. This means that the extra amount payable to you from your variable excess will be lower. If you had a variable deficiency, the deficiency would become larger and would further decrease your benefit.

As noted in Question 1.c. active employees may invest 50% of their future WRS contributions in the Variable Trust, beginning in the year 2001.

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3. How does Act 11 affect retirees?

A participant who is receiving a WRS retirement or disability benefit receives an increase ("dividend") each year based on the investment performance of the Fixed Trust. The dividend is a percentage increase in the monthly annuity amount, starting May 1. Dividend increases are permanent provided the investments continue to earn at least 5% each year. Over the last decade, WRS fixed annuities have almost doubled thanks to the dividend process.

Because Act 11 provides for a special recognition of $4 billion in market gains, the dividend paid in the year 2000 is larger than normal. The dividend payable beginning May 1, 2000 is 17.1%, of which about 9.6% is due to Act 11. The phase-out of the Transaction Amortization Account is expected to increase the retiree dividend in 2001-2005. The 5.7% dividend payable starting May 1, 2001 included about 0.6% attributable to Act 11.

Participants who retired during 1999 receive the full 9.6% dividend attributable to Act 11, as well as a pro-rated share of the regular 7.5% dividend.

Participants who retired during 2000 will not share in the 1999 Act 11 annuitant dividend. Instead, they will benefit either from the increased formula factor or from the additional interest crediting to WRS accounts mandated by Act 11 as of 12/31/99. They will also receive a pro-rated share of the 0.6% in 2000 dividends attributable to Act 11.

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4. How does Act 11 affect inactive (terminated) employees?

If you terminated employment before December 30 1999 and did not begin a retirement or disability annuity, you will not benefit from most provisions of the legislation:

o Your formula factor for service before the year 2000 will be the same as in previous law, generally 1.6%.

o Your death benefit is equal to the value of your employee account only.

o If you were hired after 1981, you are receiving 5% interest on your WRS account and 3% for separation benefits. Act 11 did not change these limits. However, employees hired before 1982 are currently receiving effective rate interest on their accounts. Those participants, even if terminated, received a share of the special recognition of market gains in the form of higher interest on their account.

An inactive employee who later returns to covered WRS employment will be eligible for the Act's provisions beginning with the new coverage date.

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5. When will I see changes in my benefits as a result of Act 11?

Four groups of WRS participants are affected by Act 11. The account records for members of each group must be up-dated and, in some cases, recomputed to reflect the provisions of the law.

Retirees

o Employees who retired in 1999 or earlier are entitled to a pension increase of 9.7%, effective May 1, 2000. (The total 1999 dividend increase, including both the regular and the Act 11 dividends, was 17.1%. The regular dividend of 7.5% was paid to eligible retirees effective May 1, 2000.) The Department of Employee Trust Funds paid most of those retroactive increases on the check issued July 1, 2001.

o Employees who retired in 1999 or earlier are also entitled to a pension increase of 5.7%, effective May 1, 2001. They received a 5.1% increase on May 1. The Department hopes to pay most of the retroactive 0.6% increases on the check issued August 1, 2001.

o Many employees who retired in 1999 or later are still being paid on an estimated basis. Their active accounts must be up-dated to reflect any late-reported earnings and interest accrued before the annuity effective date. Their final annuity amounts must then be computed, and any underpayments corrected. This process may take as much as eighteen months to complete.

Active employees who were limited to 5% interest on their WRS accounts

Before Act 11, employees first hired in 1982 or later were limited to 5% interest on their WRS accounts. Under Act 11, all employees who are active on December 30, 1999 will receive the effective rate of interest on their accounts. To implement this change, the Department of Employee Trust Funds will:

o Recalculate the 12/31/99 account balance to reflect earnings of 24.1% rather than 5% on the 1/1/99 account balance.

o Compute the 12/31/00 account balance using an earnings rate of 10.9% on the 1/1/00 account balance.

Up-dated statements of account are expected to be distributed in early October.

Active and inactive employee who were receiving the effective rate on their WRS accounts

Before Act 11, employees first hired before 1982 received the WRS effective rate of earnings on their WRS accounts. On 12/31/99, these accounts were credited with 13.5% interest on the 1/1/99 balance. Under Act 11, additional earnings of the fixed trust fund were recognized, which had the effect of increasing the interest credited on 12/31/99. To implement this change, the Department of Employee Trust Funds will:

o Recalculate the 12/31/99 account balance to reflect earnings of 24.1% rather than 13.5% on the 1/1/99 account balance.

o Compute the 12/31/00 account balance using an earnings rate of 10.9% on the 1/1/00 account balance.

The same changes will be made for any additional contribution balances that participants may have.

Up-dated statements of account are expected to be distributed in early October.

Employees who were active on or after 12/30/99 but took a separation benefit or died after that date.

o Separation benefits paid in 2000 and later will be recomputed to reflect additional earnings from 1999 and (if applicable) 2000. The additional benefit will be mailed to the former employee.

o Beneficiaries of active employees who died on or after 12/30/99 may be eligible for an enhanced benefit (see Question 1.d.). The death benefit will be recomputed and mailed to the beneficiaries.

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6. I want to retire in a year or two. How can I get information about my pension amount?

You should request official estimates from the Department of Employee Trust Funds about a year before your anticipated retirement date. You will need these estimates in order to file an application for your retirement annuity.

If you have estimates, you may file the application even if the estimates are out of date. The Department of Employee Trust Funds will correct any underpayment at the time it completes your "final computation." Because of the backlog created by Act 11, the final computation may take a year or more.

If you are more than a year from retirement or just want to try out different scenarios, you can use the Retirement Calculator at the Department of Employee Trust Funds website to get an idea of your WRS pension amount. For best results, you should have the following information on hand when you use the calculator:

o Your desired retirement date

o Date of birth of your joint survivor (if any). Your joint survivor can be a spouse, child, or any other person.

o Your years of WRS service before 2000, including any military service or forfeited service (see Questions 10 and 11).

o Your expected years of WRS service after 1999, including any military or forfeited service.

o Your money purchase balance, projected to your retirement date (see Question 8). This step is only necessary if you have a large money purchase balance and may qualify for a money purchase benefit.

o Your three highest years of earnings under the WRS and the service you earned during those years. Faculty and academic staff use the fiscal year (July-June); classified employees use the calendar year.

The calculator asks Variable Trust participants to input their variable excess amount. Until you receive an updated statement of account from the Department of Employee Trust Funds, it's best to provide a very conservative estimate, for example, 50% of your 12/31/99 variable excess.

Your staff benefits coordinator on your campus can help you request estimates, explain how the WRS works, and answer your questions. Be sure to consult with that office when you are ready to consider retiring.

7. When will I get an up-dated statement of account?

Statements of account as of 12/31/2000 are due to be distributed by the Department of Employee Trust Funds in early October. Active employees will receive their statements from their employers. Inactive employees will receive their statements by mail. If you have terminated WRS employment but have not taken a benefit, be sure the Department has your current address.

8. Until then, how can I estimate my money purchase balance?

If you were actively employed on or after December 30, 1999 and have your 12/31/99 WRS account statement, you can estimate your 1/1/2001 WRS account balance by following these steps:

1) Find the employee required 1/1/1999 balance on your 12/31/1999 WRS account statement.

2) Multiply the beginning balance by 1.241.

3) Add your 1999 employee required contributions as shown on the statement.

4) The total is your 1/1/2000 beginning balance.

5) Multiply the 1/1/2000 beginning balance by 1.109.

6) Add your 2000 contributions. For most employees, this amount is 5% of your calendar year earnings (4.1% for executives, and protectives).

7) The total is your 1/1/2001 beginning balance.

8) Multiply by two to add in the employer required portion of your account.

If you participated in the Variable Trust in 1999 and 2000, you must perform this calculation twice, once for the fixed and once for the variable portion of your account. In step 2, use 1.28 for the variable earnings rate. In step 5, use 0.93 to reflect the variable loss rate. In steps 3 and 6, allocate half of your contributions to each fund.

To estimate your money purchase balance for a future year,

1) Multiply the total money purchase beginning balance in 2001 by 1.08 (8% is the assumed interest rate for WRS investments).

2) Add in 10% of your projected salary for 2001.

3) The result is the beginning balance for 2002.

4) Repeat for each following year, until you reach the desired future year. Do not credit interest for the year in which you plan to retire.

Of course, these estimates may be too high or too low. Actual results will depend on the investment performance of the WRS trust funds.

9. How can I estimate my variable excess? (Variable Trust participants only)

Your variable excess (deficiency) is the difference between your actual account balance and the balance you would have had if you had invested 100% in the Fixed Trust. Unfortunately, this is a complex calculation that depends on the history of your account and the relative size of your fixed and variable balances. However, you should anticipate that your 1/1/2001 variable excess will be lower than your 12/31/98 variable excess, perhaps by 20% or even more. The 12/31/99 variable excess that was reported to you in May 2000 did not reflect the higher Fixed Trust earnings resulting from Act 11 and therefore it is too large. In 2000, the Fixed Fund out-performed the Variable by 17.9%. Both of these facts will produce a lower variable excess.

10. I have forfeited service to purchase. What's my deadline to buy it to be sure I get the higher formula factor?

As always, you must purchase your forfeited service before you terminate WRS-covered employment. Act 11 does not impose any new deadlines. Service performed before the year 2000 and forfeited before 2000 will be eligible for the higher formula factor (1.765% for most employees) no matter when you purchase it.

The same is true for qualifying service, junior teaching, other governmental service, and other types of purchasable service: if performed before the year 2000 it will be credited at the higher formula rate.

However, if you forfeited service after January 1, 2000 and later repurchase it, it will be counted at the old formula rate (1.6% for most employees) when your pension is calculated.

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11. How will my military service be treated under Act 11?

Military service that you performed before the year 2000 and that you are eligible to have credited to you as of January 1, 2000 will be credited at the higher formula rate. Military service that you perform during or after the year 2000, or that you become eligible to have credited to you based on WRS employment after 1999, will be credited at the old rate.

Example: You can claim WRS credit for up to four years of military service that you performed before 1974 and before coming to work for a WRS employer. This service is credited at the rate of one year for each five years of WRS creditable service. Thus if you have 19 years of WRS service on January 1, 2000, you could receive credit at the higher formula rate for up to three years of military service.

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12. I am receiving a WRS annuity. Would it be to my advantage to try to return to active WRS coverage to get the higher formula factor?

Probably not. As explained in Question 3. you will receive your share of the special recognition as a dividend on your annuity.

Moreover, if you return to covered employment and stop your annuity, your service prior to your first retirement will not be eligible for the new formula factor unless you work for at least three full continuous years (fiscal years for teachers and academic staff, calendar years for classified staff). Even then, the number of years of old service eligible for the improved formula factor cannot exceed the number of years you work after returning to covered employment. This provision is not a part of Act 11 but is in previous law, s. 40.26(3), Wisconsin Statutes.

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13. When is the best time for me to retire?

There are no Act 11 deadlines to worry about. Act 11 does NOT provide for a retirement window, and there is no date after which you will lose eligibility for the new benefits.

You can experiment with various retirement scenarios using the retirement calculator on the Department of Employee Trust Funds web site.

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14. How is the Fixed Fund's "smoothing mechanism" changing?

Under previous law, accumulated gains and losses in the Fixed Fund (the Transaction Amortization Account or TAA) were distributed to the employer, employee, and annuity reserves at the rate of 20% per year. Exceptionally good or poor investment results were "smoothed" by being phased in over several years. Act 11 provides that the balance remaining in the TAA after January 1, 2000 will be distributed over five years to the employee, employer, and retiree reserves. At the end of five years, the TAA will no longer exist.

Instead of the TAA, the Fixed Trust will have a Market Recognition Account (MRA). At the end of each year, that year's gains and losses will be tallied and 20% of the gains will be distributed to the reserves each year for the next five years. If there is a loss, 20% of the loss will be subtracted from the reserves each year for five years. Once the Market Recognition Account is completely phased in, the reserves of the Fixed Trust will receive an annual distribution equal to the sum of 20% of the gains (or losses) from each of the last five years.

Though very similar in concept to the TAA, the MRA will result in faster recognition of gains and losses because each year's experience will be tracked separately and fully recognized by the end of five years.

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15. What is the legal status of Act 11?

1999 Assembly Bill 495, a bill to improve benefits in the Wisconsin Retirement System (WRS) was passed by both houses of the Wisconsin legislature in fall 1999. The governor signed the bill on December 16, 1999. It was published on December 29, 1999 and was to have taken effect on the day after publication, December 30, 1999. The legislation is now officially known as 1999 Wisconsin Act 11.

Implementation of Act 11 was delayed by court injunction pending review of questions that were raised about the constitutionality of the law. On June 12, 2001, the Wisconsin State Supreme Court dismissed all of these questions and lifted the injunction. The Department of Employee Trust Funds will proceed to implement Act 11 as quickly as possible.

In early July one of the plaintiffs in the case, the State Engineering Association, asked the Court to reconsider its decision. This request is pending but will not delay implementation of Act 11.

For more information and the text of documents related to the court case, see the Department of Employee Trust Funds web site

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16. For More Information

Visit the "Act 11 Benefit Information" and "What's New - Hot Topics" sections of the Department of Employee Trust Funds web site

Return to the UW System Administration Employee Benefits Home Page

Return to the UW System Administration Human Resources Departments Home Page for a listing of all departments

This document was created by UWSA Office of Staff Benefits and Payroll Policy.

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Human Resources & Workforce Diversity

WRS Pension Improvements

1. How will Act 11 affect active employees?

2. I participate in the Variable. Will Act 11 affect my variable benefit?

4. How does Act 11 affect inactive (terminated) employees?

7. When will I get an up-dated statement of account?

10. I have forfeited service to purchase. What's my deadline to buy it to be sure I get the higher formula factor?