A strong 2017 investment performance means Wisconsin Retirement System (WRS) retirees will see annuity increases of at least 2.4% beginning May 1, according to the state’s Department of Employee Trust Funds.
The 2.4% adjustment will be provided to all 203,000 WRS retirees, while approximately 41,000 of those retirees will also see the variable portion of their annuities increase by 17.0%.
That translates into an extra $560.66 a year for the average retiree, and $1,538.39 a year for the retirees who have part of their money in the Variable Trust Fund, agency spokesman Mark Lamkins said, according to the Wisconsin State Journal.
The dividends are a product of investment returns earned on the WRS’ assets. The Core Fund, which covers all participants in the WRS, had investment returns of 16.2%, and recorded its fifth straight year of positive gains, following five straight years of losses. Meanwhile, the Variable Trust Fund earned 23.2% for fiscal year 2017.
The WRS does not offer guaranteed cost-of-living adjustments (COLAs), but instead provides annual annuity adjustments that are based on trust fund investment returns, and the funding needs of the WRS.
The State of Wisconsin Investment Board (SWIB) manages the Core Fund, which is heavily invested in stocks, but also has holdings in bonds, real estate, and private equity. Gains and losses are spread out over a five-year period to help keep annuity adjustments and WRS employer and employee contribution rates stable, which explains the large gap between the size of the returns and the size of the dividend payout.
The Variable Fund is only invested in domestic and international stocks, and gains and losses are not smoothed, which is why participants in this fund saw a significantly higher return. However, this also means those investors are exposed to a higher degree of risk.
Over the past five years, the Core Fund annuity adjustments have averaged 2.5% a year, according to the State Journal, compared to the US Consumer Price Index, which has risen an average of 1.4% a year during the same time period.
The Wisconsin Retirement System is the ninth-largest US public pension fund, with approximately $108 billion in assets. Last year, the WRS paid nearly $5.2 billion in retirement benefits.