WRS Performance
Preliminary year-to-date as of 10/31/14
Preliminary returns are estimated, subject to final portfolio and benchmark valuations.
Core  5.7%
Variable  6.3%

Frequently Asked Questions

    2010 Asset Allocation - Frequently Asked Questions (PDF)
    Market Conditions and the WRS - Frequently Asked Questions (PDF)

  1. What legal standard governs SWIB’s investment decisions?

  2. How does SWIB ensure that it adheres to the highest ethical standards?

  3. How does SWIB ensure that its investments comply with statutory requirements and Board policies?

  4. How do SWIB's investment results affect me?

  5. What are the criteria for making investment decisions?

  6. Who decides which investments to make?

  7. What types of investments are included in the Core Fund?

  8. What types of investments are included in the Variable Fund?

  9. Is the Variable Fund a good choice for me?

  10. How is investment performance measured?

  11. How does SWIB use passive investment management?

  12. How does SWIB use external managers to invest WRS trust funds?

  13. Why does SWIB stay invested in stocks when markets are doing poorly?

  14. How often does SWIB update investment returns?

  15. What is SWIB doing to prepare for the expected increase in the number of retirees?

    1. Q. What legal standard governs SWIB’s investment decisions?
      A. As is the case for public pension funds in most other states, the overall statutory standard governing SWIB is the “prudent investor” (sometimes called “prudent expert”) standard. Essentially, that is a well-established legal standard that holds SWIB Trustees and staff legally accountable for exercising the diligence, skill and prudence that an institutional investor acting in a like capacity with similar goals would exercise. The law also imposes a fiduciary duty on the Trustees, which requires them to invest the assets solely for the benefit of the members of the retirement system.
    2. Q. How does SWIB ensure that it adheres to the highest ethical standards?
      A. SWIB staff members are subject to State and agency ethics rules, which include restrictions on personal trades and conflicts of interest. SWIB also encourages investment staff to pursue certification as a Chartered Financial Analyst, which requires adherence to a Code of Ethics and Standards of Professional Conduct. Annually, all employees must certify that they are familiar with and are not in violation of ethics rules. All new employees receive training in the rules. The Chief Legal Counsel conducts annual ethics reviews for the staff and annual fiduciary reviews for the Trustees. Personal trades by SWIB staff must be pre-approved to verify that they do not conflict with the trading activity in SWIB’s internal portfolios. Each SWIB employee must submit a quarterly report of all personal purchases and sales of investments, which is audited to ensure that every personal trade was pre-approved. SWIB staff responsible for direct investment or investment management, as well as certain other senior staff and Trustees, are required to file quarterly investment transaction reports with the Wisconsin Government Accountability Board. These reports are subject to a semi-annual review by the Legislative Audit Bureau (LAB), which looks for any conflict with trading activity in the SWIB internal portfolios. The LAB may report concerns to the Board’s Audit Committee as well as to the Legislature’s Joint Committee on Audit. Referrals by Trustees or public officials of vendors interested in doing business with SWIB are documented in a Referral Log, which is shared with the Audit Committee. As part of the external manager due diligence process, managers are asked to respond to questions regarding payments to consultants and any activities that may constitute “pay to play.” No conflicts were noted during this due diligence in recent years. SWIB annually prepares a list of all vendors with which it does business, the amount and nature of the business and the process used to select each vendor. This list is a public document.
    3. Q. How does SWIB ensure that its investments comply with statutory requirements and Board policies?
      A. In compliance with current state law, SWIB has adopted rigorous processes for establishing investment standards and assuring compliance with those standards. These processes create a disciplined approach for assuring that reasonable investment standards are created in an open, public fashion and that compliance with those standards is maintained. Both internal and external managers are required to routinely certify to SWIB that they have complied with their investment guidelines and/or investment management agreement. External managers are also required to provide SWIB with a review of the firm’s internal controls on an annual basis.

      In consultation with staff and a consultant employed by the Board, the SWIB Trustees establish Investment Policy, Objectives and Guidelines that set the overall policies for investing the assets under SWIB’s management. This is a public document that must be filed with the Legislature. The investment guidelines, which establish acceptable investments and limits, are established for each portfolio. The guidelines are approved after review by a multi-disciplinary Investment Committee of SWIB staff from each of the four major asset class divisions within SWIB and are then adopted by the SWIB Trustees. The Committee is chartered by the SWIB Trustees and, under state law, its meetings are open to the public. Activities of the Investment Committee are reported to the SWIB Trustees.

      The Trustees have hired private market consulting firms to provide a fiduciary review of potential private market investments. These consultants review prospective investments with new managers and advise SWIB in writing whether new investments meet the prudent investor standard. The SWIB Trustees have also chartered a staff Compliance Committee, which is responsible for monitoring compliance with the investment policies, portfolio guidelines and state statutes. Under state law, Compliance Committee meetings are open to the public. The activities of the Compliance Committee are reported to the SWIB Trustees. The staff position of Internal Auditor is required by state law and reports to the Trustees through the Board’s Audit Committee. A staff of three internal auditors assists the Compliance Committee and reports directly to the Audit Committee of the SWIB Board. The Audit Committee works with the Internal Auditor and the Legislative Audit Bureau (LAB). Its membership includes four Trustees along with the State Auditor and State Controller (both ex-officio members).

      Internal audit reports are presented to the Audit Committee in open session and are available to the public. One exception is information technology security audits, which contain sensitive information. The LAB conducts annual financial audits and biennial program audits of SWIB. Their reports are filed with the Joint Audit Committee of the Legislature and also are presented to the SWIB Trustees. The financial audit is available on the SWIB website in the annual report. Program audits are available on the LAB website. Pursuant to state law, SWIB files multiple reports annually concerning its operations with the Legislature. Each of these reports is a public document.
    4. Q. How do SWIB's investment results affect me?
      A. A significant majority of the cost of benefits that today's retirees receive is funded from investment earnings. The impact of investment results on  individual accounts is determined by the Department of Employee Trust Funds (ETF) and depends on several factors established by law. In addition, investment gains reduce the amount of tax money paid by state and local governments to provide pension benefits to their employees. For more information about your retirement account, contact ETF.
    5. Q. What are the criteria for making investment decisions?
      A. The law requires that all of our investment decisions be guided solely by what is in the best interest of the WRS. Our investment objective is to produce the long-term asset growth needed to meet the obligations to current and future retirees. Our strategy is long-term and we evaluate both rate of return and risk when considering a mix of assets, i.e. stocks, bonds, real estate, as well as individual investments.
    6. Q. Who decides which investments to make?
      A. SWIB's professional investment staff makes the day-to-day decisions on what to buy and sell. Transactions must be within the parameters determined by the investment policy established by SWIB's nine-member Board of Trustees. That same criteria is followed by external managers investing on SWIB's behalf.
    7. Q. What types of investments are included in the Core Fund?
      A. The Core Fund is a fully diversified, balanced fund. In other words, it includes a mixture of assets, such as stocks, bonds and real estate. It is diversified to stabilize the effects of market changes. The asset allocation for the Core Fund is typical for large public pension funds. All WRS participants have monies invested in the Core Fund. A list of the stocks in the Core Fund as of the end of the fiscal year can be found in the annual Schedule of Investments published by SWIB.
    8. Q. What types of investments are included in the Variable Fund?
      A. The Variable Fund is a  stock fund. Investments are divided between domestic stocks (traded on US markets) and 30% International stocks (traded on foreign markets). The allocation target for domestic stocks is 70% of the Variable Fund and 30% for international stocks. This allocation is reviewed annually. The stocks are the same as the holdings that are found in the Core Fund. A list of the stocks in the Variable Fund as of the end of the fiscal year can be found in the annual Schedule of Investments published by SWIB. SWIB's most current domestic stock holdings is available from the Securities and Exchange Commission EDGAR database.
    9. Q. Is the Variable Fund a good choice for me?
      A. Selecting or remaining in the Variable Fund is an individual decision. As with any investment, it is best to consider several important factors, including personal risk tolerance, years until retirement, and the other types of investments that will provide retirement funding. Over the long-term, stocks have outperformed most other types of investments and Variable Fund returns have exceeded Core Fund returns.

      The Variable Fund’s investments are diversified among different types of stocks to help reduce risk. However, the Variable Fund’s returns are more volatile and, unlike the Core Fund, returns are not smoothed over a period of time. The Variable Fund has been negatively affected by unfavorable markets over the years. Reviewing the Historic Invest Returns & Impact on WRS can be used to help in your decision. The process for determining the effect of investment returns on employee accounts (the "effective rate") and change in benefits for retirees differs between the Variable and Core Funds. The Department of Employee Trust Funds (ETF) computes those amounts. Notification to cancel participation in or to elect to participate in the Variable Fund must be sent to ETF. Participants considering this option need to be fully informed about the potential risks and rewards before making a decision. More information on how participation in the Variable Fund affects your benefits is available from the ETF website.
    10. Q. How is investment performance measured?
      A. Performance is measured against two standards. The first is the long-term actuarial benchmark. The WRS actuary has determined that a long-term average annual return of 7.2% is the minimum expected to pay projected benefits. A second goal is to exceed an "investment benchmark," which is intended to measure SWIB's results against the markets. It includes either either an appropriate index for the asset class, such as the Russell 3000 Index, or a peer group average. Benchmarks are set by the Board of Trustees after a review by an outside expert. SWIB's returns are reported on a one-, five-, and ten-year basis. The Investment Board also participates in independent comparisons of its performance to that of other large public pension funds. Performance information is reported in the WRS News and in annual reports to the State.
    11. Q. How does SWIB use passive investment management?
      A. Currently, the Investment Board uses both active and passive strategies in managing the assets of the Wisconsin Retirement System. Using "active" management, a trained portfolio manager seeks to increase investment returns through buying and selling individual investments. "Passive" management involves investing in a fund that replicates a market index, such as the Russell 1000 Index of domestic stocks. Passive investment provides a return that is the same as the market as a whole (no worse or better). We make greater use of passive strategies in markets that are more efficient, such as large company stocks.
    12. Q. How does SWIB use external managers to invest WRS trust funds?
      A. It is typically cheaper for SWIB staff to manage most assets. External managers are used to manage investments that involve skills, locations, support systems or intensity of staff attention that make direct management by SWIB staff impractical or less cost effective. SWIB selects external managers based on investment style, performance, experience, company size and fee structure.
    13. Q. Why does SWIB stay invested in stocks when markets do poorly?
      A. The Variable Fund remains invested in stocks because under state law it is an equity (stock) fund. Participants choose the Variable Fund option with the understanding that it is a stock fund and is, therefore, subject to fluctuations of the market. Stock holdings are widely diversified to manage risk. A significant portion of the Core Fund assets is invested in stocks in order for the Fund to achieve the 7.2% rate of return over the long term that is expected by the WRS actuary. Annually, the Board of Trustees reviews the asset allocation for both Funds and considers changes based upon expected returns under a variety of possible economic conditions. Given the large size of the WRS trust funds, it is not possible to effectively "time the markets" in response to possible geopolitical events or short-term economic developments. Our portfolio managers can take a more defensive position in the types of stocks they own based on their evaluation of current economic and political events.
    14. Q. How often does SWIB post investment returns?
      A. SWIB updates performance numbers each month for the Core and Variable Funds on the website. Performance numbers for the calendar year are what affects retirement system participants. These numbers are used to determine the credit that actively employed members receive in their pension accounts as well as changes in annuitants’ benefits each year as determined by the Department of Employee Trust Funds. However, we post monthly updates to give participants an indication of the performance trend as the year progresses. Mutual funds determine performance each day to set their share price, since investors buy into and sell out of their funds daily. The WRS does not need to incur the extra expense of daily pricing. The performance of the Core and Variable Funds is determined by the returns of many individual investments. Stocks and other investments traded on public markets are priced daily. However, performance figures for privately traded investments—such as business loans, real estate and private equity—are typically not available until up to four weeks after the end of the month. To avoid confusion, SWIB generally waits until final calculations are made on all investments before updating the monthly performance. Performance information is updated quarterly in the WRS News. Our annual financial report provides annual performance information at the end of the fiscal year. These documents are available on our website or by making a request to info@swib.state.wi.us.
    15. Q. What is SWIB doing to prepare for the expected increase in the number of retirees?
      A. The number of retirees in the WRS is expected to more than double over the next 10 to15  years. The pension system is designed to ensure that funds are available to provide benefits to both current and future retirees. SWIB must make investment decisions based on these objectives. SWIB’s investment earnings play a significant role, funding a significant majority of the cost of retirement benefits for the WRS. Employer and employee contributions make up the remaining amount. SWIB’s asset allocation and expected rate of return are reviewed annually and take into account the anticipated increase needed for future benefit payments. A 50-year financial projection by Gabriel, Roeder, Smith & Company — the WRS actuary — said that the WRS is well funded. That takes into account the projected significant increase in future benefit payments due to the expected increase in participants who will retire. Net cash flow for the system (contributions + investment income - benefit payments) has declined in recent years and is now slightly negative. The reduced cash inflow was anticipated and, in fact, is on target with long-term actuarial projections for a mature retirement system, such as the WRS. The increase in benefit payments should not require changes in basic investment strategy for many years.