Scott Walker Wins the Accountants’ Primary - rock-solid pension system...

Scott Walker Wins the Accountants’ Primary - Wisconsin’s rock-solid pension system makes him presidential material.

Wisconsin governor Scott Walker’s signature legislative achievement, Act 10, was one of the most polarizing and galvanizing pieces of state legislation in recent memory. The law, which severely weakens public-union powers and mandates public-pension sanity, is providing a blueprint for other Republicans around the country. Walker’s public-pension stewardship also demonstrates why he is on the short list of serious presidential contenders.......

...As states have become more sensitive to burgeoning pension costs in recent years, and with increasing regulatory scrutiny and media attention on possible fee abuses by investment managers, more public-pension systems have been moving away from the standard investment approach. For instance, CalPERS, which manages the California Public Employee Retirement System and is the largest public pension in the nation, announced last year that it would no longer allocate its funds to outside hedge-fund managers. The news shook the investment-management world because CalPERS is often the leader in setting public-pension trends, but in this case it is significantly behind what Wisconsin has been doing for years. In 2007, the state managed 21 percent of its pension investments directly. Today, it manages 57 percent. The results are fewer fees that decrease returns, more coherence in overall portfolio management, and fewer alternative investments that can be very risky.

The State of Wisconsin Investment Board also allocates less to private equity than other pensions do. Less than 7 percent of the WERS assets are allocated to private equity, and when the board does invest, it looks for smaller funds. John Drake, the senior investment officer of Wisconsin’s Investment Board, spoke last year about how smaller private-equity firms can be better. He said, “Our peers have done large strategic accounts. We have been going down market. . . . We like the alignment of interests down there.” Translation: Larger private-equity firms make plenty of money from fees and do not rely on the performance of their investments as much as smaller firms do.

By comparison, more than 10 percent of the assets under management at CalPERS and its sister CalSTRS (California States Teachers’ Retirement System) are invested in private equity. Washington allocates 23 percent of its assets to private equity, Oregon 18.6 percent, Michigan 18.8 percent, and the Pennsylvania Public School Employees’ Retirement System 20.5 percent, according to the financial-data firm Preqin. Pennsylvania’s and Michigan’s pension systems are less than 65 percent funded, but Oregon’s and Washington’s are both over 90 percent funded. So high allocations to alternative assets are neither necessary nor sufficient for pension health, but they do increase risk and diminish liquidity. Wisconsin has managed to avoid those dangers.

Then there is the management of the liability side of the balance sheet, which is where Scott Walker has left his biggest mark. In 2008, according to the National Association of State Retirement Administrators, Wisconsin spent 1.3 percent of all state and local spending on public-employee pensions, less than half the 2.9 percent average nationwide. Since then, however, it has improved those numbers further, reducing pension payments to retirees by $3.2 billion. And remember, this is Wisconsin, a state that has not voted Republican in a presidential election since 1984 and is far from homogeneous in its political views.

Walker’s Act 10 has made it likely that Wisconsin’s health will continue in the long term, and it has already reaped massive long-term savings. The act does many things, including increasing the required annual contributions of public employees (including Milwaukee public employees) to up to 50 percent of their pensions, or roughly 5.8 percent of salaries. It requires employee contributions of at least 12.6 percent of health-care costs. It prohibits public unions from engaging in collective bargaining on anything except wages, which are capped by cost-of-living calculations. (The act does, however, include a collective-bargaining exemption for police and firefighters because of the public-safety role that they play.)

Perhaps most important, public unions are now prohibited from automatically deducting union dues from employee paychecks, and they must annually recertify their union status by collecting the votes of at least half their membership base. To the labor circle, that is the existential threat that makes Scott Walker Public Enemy No. 1.

While Walker’s signature legislative achievement has rankled the unions, the oft-forgotten carve-out for firefighters and police officers has become somewhat of a blueprint for other Republican governors across the country. It also gives Walker a retort to the charge that he is against middle-class workers. In Milwaukee particularly, where Walker was the Milwaukee County executive before he ran for governor, he enjoys widespread support among union members, especially police and firefighters.

Republican governors from other states have taken note. First-term Illinois Republican governor Bruce Rauner, for instance, just proposed $2 billion in public-pension cuts but excluded firefighters and police officers. “Those who put their lives on the line in service to our state deserve to be treated differently,” he said. Michigan governor Rick Snyder included a carve-out for police and firefighters in a right-to-work bill last year.

That approach preserves the natural alliance that Republicans have with law-enforcement employees and firefighters, who often lean more to the right than their union leadership. Combined with aggressively tackling the stranglehold that public unions have long had over their members’ collective voices and the public coffers, the Walker formula seems increasingly to be a winning one. It could eventually take him to the White House.

— Brett Joshpe, CFA, is an attorney in New York City and the principal of Joshpe Law Group LLP. He is also a co-author of the book Why You’re Wrong About the Right.

Perhaps most important, public unions are now prohibited from automatically deducting union dues from employee paychecks, and they must annually re-certify their union status by collecting the votes of at least half their membership base. To the labor circle, that is the existential threat that makes Scott Walker Public Enemy No. 1.

This is the main reason that union bosses and the demonRATS hate Walker and the average union worker and ordinary citizen love Walker.

More than any thing else, no matter what happens to Walker in the Presidential election, this will be his gift to America.

Thank you for carrying the flag for Walker.
Now that I live in MN, he hear is a frequent topic in MN, IA and WI

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