SUMMARY

Under s. 77.70 (2) (b), Wis. Stats., Milwaukee County may use a portion of the additional 0.4 percent sales and use tax increase to address the ERS’s unfunded actuarial liability and payments associated with $172.4 million in outstanding Milwaukee County pension bond obligations and related interest payments as of December 31, 2024. In addition, under Act 12 requirements:

• the investment return assumption is 6.8 percent;
• employees hired after December 31, 2024, are required to participate in the Wisconsin Retirement System; and
• no increases or enhancements may be made to the ERS benefits of employees remaining in the ERS after January 1, 2024, except those required for compliance with federal law.

The ERS is funded by contributions and investment income. ERS contributions are calculated using actuarial methods, recommended by the Pension Board and authorized by the Milwaukee County Board of Supervisors during the annual budget process. In 2024, RPS reported $84.9 million in total contributions, including $73.3 million from Milwaukee County and $11.6 million from participants. In 2024, employee contributions varied between 4.3 to 6.9 percent of employee pay. From 2020 through 2024, contributions represented 37.1 percent of total funding for the ERS.

RPS investment assets were entirely managed externally. The Pension Board contracted with an investment consultant to assist in monitoring the investment policies and guidelines and select investment managers to manage the assets of the ERS. In 2024, RPS reported an investment return of 8.9 percent and net investment income of $149.9 million. From 2020 through 2024, net investment income represented 62.9 percent of total funding for the ERS.

The amount of pension benefits provided to retired participants or their beneficiaries as annuity payments increased from $199.4 million in 2023 to $200.1 million in 2024, or by 0.4 percent. ERS pension benefit amounts are determined by:

• the use of a multiplier, which is typically 1.6 percent;
• the number of creditable years of service the participant had completed; and
• the participant’s final average salary.

Each year, participants receive a fixed 2.0 percent postretirement pension adjustment to their monthly pension benefit amount, as authorized by Milwaukee County Ordinances. The average annual annuity payment for ERS retirees increased from $24,600 in 2023 to $24,900 in 2024, or by 1.2 percent.

In 2001, Milwaukee County established “back drop” pension benefits to incentivize employees to work beyond their retirement date. These back drop benefits were subsequently limited effective April 1, 2013. In 2024, RPS authorized 44 back drop benefit payments totaling $13.0 million.

The ERS reported a net pension liability for each of the last five years. As of December 31, 2024, the net pension liability was $686.5 million, compared to $729.4 million as of December 31, 2023. The ERS was 71.6 percent funded as of December 31, 2024.

Fiduciary net position, which is the assets less liabilities, is a measure of overall financial condition. Although the fiduciary net position of the ERS on the basis of generally accepted accounting principles (GAAP) increased by 1.6 percent, it remained $1.7 billion as of December 31, 2024.

The increase is primarily attributable to an increase in the value of investments due to favorable market conditions during 2024.

We reported two significant deficiencies in internal control at RPS. Specifically:

• We again found RPS had not conducted a comprehensive review to ensure there was an adequate system of internal control related to its fiscal employee positions.
• We again found deficiencies in RPS controls over its pension benefit computer system, including a lack of a comprehensive review for role configurations and user access to the system.

We also found that RPS and Milwaukee County took sufficient steps to resolve other issues we reported in the 2023 financial audit (report 24-7).

As part of this audit, we retained an actuary to conduct an independent review of the actuarial calculations and actuarial valuation report for the ERS as of December 31, 2024. In addition to the recommendations made by the actuarial auditor, the actuarial audit also raised a consideration about whether an ordinance change that automatically vested 838 employees who had left Milwaukee County employment as of December 31, 2024, was required under federal law. As noted, under 2023 Wisconsin Act 12 Milwaukee County is prohibited from authorizing enhancements to the ERS benefits of employees remaining in the ERS after January 1, 2024, except those required under federal law. We recommend that RPS work with Milwaukee County to confirm the requirements of federal law and compliance with 2023 Wisconsin Act 12.

Please see the complete list of our recommendations on our website.