Forbes’s Wisconsin Pension Myth

by Christian Schneider

Add another one to the list of Wisconsin myths: Over at Forbes.com, Rick Ungar has posted a piece that purports to show that Gov. Scott Walker is lying about how government-employee pensions are funded in Wisconsin. His thesis, drawing on this piece by David Cay Johnston, is that Wisconsin state employees participate in a deferred-compensation program, whereby they set aside their own money and the government matches it:

The pension plan is the direct result of deferred compensation — money that employees would have been paid as cash salary but choose, instead, to have placed in the state operated pension fund where the money can be professionally invested (at a lower cost of management) for the future.

His conclusion, therefore, is that 100 percent of the pension benefits currently received by state- and local-government employees is borne by the employees themselves:

If the Wisconsin governor and state legislature were to be honest, they would correctly frame this issue. They are not, in fact, asking state employees to make a larger contribution to their pension and benefits programs as that would not be possible — the employees are already paying 100% of the contributions.

What they are actually asking is that the employees take a pay cut.

Unfortunately, his “smoking gun” is not true. Not even close.

The Wisconsin Retirement System and deferred compensation are two completely separate things. Full-time state- and local-government employees are participants in the Wisconsin Retirement System, which uses taxpayer money to fund both the state (around 5 percent of salary) and employee (another 5 percent) contributions to their pensions.

On top of that, if they choose, state employees can participate in the deferred-comp plan, where they decide how much of their money to set aside, pre-tax, and a portion is matched by the state. That is in addition to their traditional pension contribution.

All this can be found in Chapter 40 of the Wisconsin State Statutes, which clearly demarcates each program in separate subchapters. Further, the Wisconsin Retirement System is explained in detail in this paper from the Wisconsin Legislative Fiscal Bureau.

This is what happens when national writers become instant experts in state-benefit issues — expect a correction post soon. Sadly, the toothpaste might already be out of the tube.

— Christian Schneider is a senior fellow at the Wisconsin Policy Research Institute.

The Corner

The one and only.