Why Wisconsin’s Pension Chief Earns Eight Times the Governor’s Salary Retirement fund staff are among the country’s highest-paid state employees Illustration by Alexandra Citrin-Safadi/WSJ; Photos: iStock By Heather Gillers SEPT. 09 Wisconsin last year paid Edwin Denson more than $1.2 million for managing the retirement savings of state workers, including teachers and firefighters. That’s eight times the governor’s salary, making him the state’s highest-paid official in data excluding employees of the state’s courts, colleges and legislature. About 30 of the pension fund’s investment managers also each earned more than $500,000, including bonuses that have been awarded year after year—even when Wisconsin underperforms similar-size funds. The fund’s performance in recent years has been middle-of-the-road. Wisconsin’s five-year performance ranked fifth among large pension funds relative to industry medians. The generous compensation for Wisconsin’s pension managers isn’t unusual. Investing worker retirement money has long been one of the clearest routes to a big public paycheck in some states, short of coaching football. Pension fund managers can regularly reap big pay for meeting performance targets—ones set by fund trustees. That’s despite research showing many funds would do better with a set-it-and-forget-it portfolio of stocks and bonds. The State of Wisconsin Investment Board, the agency that invests $131 billion in state pension funds along with some other state money, “has a pay-for-performance approach that keeps its employees working in the best interest of the plan,” Denson said in a statement. More than 97% of investment board employees eligible for bonuses have earned them every year since 2011, according to state auditors. Retired teachers, firefighters and other public workers in Wisconsin have faced more ups and downs. That’s because of a rule that reduces pension checks in down markets to avoid draining the fund. After the 2008 financial crisis, those checks shrank for five years in a row. The State of Wisconsin Investment Board manages the investments of the Wisconsin Retirement System, which provides benefits to University of Wisconsin-Madison employees, among others. Photo: Lauren Justice for The Washington Post/Getty Images In states without that type of rule, residents are more likely to feel pain when returns fall short. Governments typically have to make up the difference by cutting budgets, drawing on taxpayer dollars or taking more money out of worker paychecks. Creative internal targets aren’t limited to state retirement funds. Wall Street investment managers often collect high paychecks for managing funds that earn less than a low-cost passive investment mix. But the practice stands out in the cash-strapped public sector, especially in a higher-rate world where pensions can earn robust returns with relatively simple investments. Advertisement - Scroll to Continue Middle of the Pack The Wisconsin Retirement System’s performance is uneven relative to its peers. The fund has beaten the five-year median returns calculated by Wilshire Trust Universe Comparison Service six out of the past 10 years. Its performance relative to those medians ranked fifth among the 10 largest pensions last year. Among retirement funds with the same fiscal year-end date, Wisconsin’s pension ranks 11th out of 25, according to 2022 data collected by the Boston College Center for Retirement Research. SHARE YOUR THOUGHTS How should states compensate their investment officials? Join the conversation below. But bonus pay for the fund’s investment managers is tied to a different measure—one they have beat every year for more than a decade. The State of Wisconsin Investment Board’s bonus pool has increased eightfold from $3 million in 2009 to $24 million in 2021, according to state audits. The amount of money it managed grew by about 2.5 times during that period. The investment board paid a total of about $66 million to roughly 300 people last year in salary and other compensation as well as bonuses for their performance in 2021. The average bonus for the 84 investment management staffers was $206,452, state auditors found. “I know we want competent people to manage the money, but this does seem to me to be a little bit much,” said Sandra Liliana Pucci, who retired last year as a professor of linguistics at the University of Wisconsin-Milwaukee. Wisconsin’s fund does beat most other state pensions on one measure: The amount of money in its coffers is enough to pay all promised benefits. That’s largely thanks to a steady flow of taxpayer funds and contributions from workers, as well as occasional pension check reductions for retirees who can lose years of annual benefit increases in bad markets. In a written response to and interviews with The Wall Street Journal, the State of Wisconsin Investment Board said the board’s nine trustees work with outside consultants to set performance benchmarks and determine compensation after evaluating industry job data. Most trustees are appointed by the governor and confirmed by the Senate, but they also include two public worker representatives and one state official. The investment board also said it manages more money internally than other retirement funds, which it expects to pay off in lower overhead costs and higher returns. It said it opts for a safer mix of assets because it isn’t trying to fill a funding gap and wants to mitigate the impact on pension checks in bad market years. State auditors have raised concerns about compensation, though. In one case they flagged, an investment board employee got a $180,000 signing bonus in 2019, then left the next year with another $180,000 in severance—without paying back the signing bonus. In a statement to the Journal, the investment board called the payments “a very unique one-off situation” and said the employee was two weeks away from the end of the repayment period on the signing bonus. The board said it has since set tighter rules governing such bonuses. Pay for Performance Higher pay for investment managers doesn’t always mean better performance. New York’s fund for state and local government employees ranked second out of the 10 largest plans in 2022 for its performance relative to five-year median returns calculated by Wilshire Trust Universe Comparison Service. The investment chief responsible for managing that fund, Anastasia Titarchuk, made less than $500,000 last year. That was well below the compensation of most of her peers. Nevada’s public pension fund, which keeps the majority of its portfolio in low-cost passive index stock-and-bond funds, has an investment staff of two people. Its five-year annualized return beats most of the 10 biggest pension funds. In Wisconsin, executive director and investment chief Denson’s pay of more than $1.2 million last year made him the third-highest-paid manager among the 10 largest pension funds, even though his fund’s five-year performance is in the middle of the pack of that group. A different metric shows many of the biggest pension funds underperforming, at least according to a 2021 study. That research looked at 24 state pension funds and found 22 did worse than a hypothetical passively invested portfolio with the same balance of safe and risky assets. Nevertheless, 18 of those 22 funds beat their own internal benchmarks. (Wisconsin wasn’t among the plans studied because it has a different fiscal year.) A meeting of the California Public Employees’ Retirement System in Sacramento, Calif. Photo: max whittaker/Reuters Pension funds say their benchmark-setting process is rigorous. Funds hire consultants to propose benchmarks and the final signoff on targets and bonuses comes from the fund’s trustees—typically government officials, gubernatorial appointees or public workers—who oversee the agency. Sometimes, pension funds make those targets easier to meet. The nation’s biggest pension fund, the California Public Employees’ Retirement System, for years had a target for its higher-risk private-equity portfolio to beat a common stock index by 3 percentage points. After falling short of that goal for four out of five years, Calpers in 2019 trimmed its outperformance target to 1.5 percentage points. “What I find really difficult is a lot of times when a proposal comes forward to change the benchmark, it seems to be aligned with some long-term underperformance against a benchmark,” Eraina Ortega, a Calpers trustee, said at a meeting that year.
Now these people are smart. Good for Nevada making a prudent decision. Why pay these "Master of the Universe" for under performance? These Wisconsin scammers should be fired on the spot. Replace them with SPY & some TLT.
%% BY some measures they are good; meaning, compared to the union hindered companies like like\ DAL, GM which went bankrupt Looks like the worst= NJ,KY,ILL,CT,IN. HI + CO.......55 % more or less funded , are on the watch list. CA , have to wonder about with all the people moving away?? {I would like to see more of stats like VA made 27% one year, not long ago, but having a hard time on finding those......} 5-7% annual % seem much more common.
%% True\ 5-7%; but that's what they do\thats what bond heavy AUM do. Actually the VA 27% noted was quite a bit better than 5-7% average
%% TRUE; more like a miracle for a state pension plan Not even Peter Lynch'$ long term 29.2 % average / 1977-90.............................