The Legislative Audit Bureau is required by s. 13.94 (1)(dc), Wis. Stats., to contract for the performance of an actuarial audit of the Wisconsin Retirement System (WRS) at least once every five years. After a formal request-for-proposal process, a contract was awarded to the Segal Company for an independent audit of the actuarial valuation as of December 31, 2009. The services provided under this contract primarily focused on verification and analysis of actuarial assumptions and valuation methods used for the WRS by the Department of Employee Trust Funds (ETF) and its consulting actuary, Gabriel, Roeder, Smith and Company.

Enclosed is the actuary's audit report along with responses from ETF and its consulting actuary. The findings, conclusions, and recommendations in the report are those of Segal. Audit Bureau staff managed the audit contract but were not involved in the fieldwork, analysis, or writing of the audit report.

Segal concludes that the stated methods and assumptions used in the 2009 actuarial valuation were reasonable and properly employed in determining the costs of the WRS and notes that the five-year smoothing mechanism used for the WRS is reasonable and meets actuarial standards. Segal also offers several recommendations to improve the consulting actuary's annual actuarial valuations, including working with ETF to improve the presentation of asset information, expanding the description of the actuarial cost method, and applying an assumption related to optional forms of payment elected by some members who retire after a certain age.

Segal's actuarial audit does not evaluate various changes to the WRS that were implemented after December 31, 2009, including changes enacted as part of 2011 Wisconsin Acts 10 and 32. Changes to actuarial economic assumptions for the WRS that the ETF Board approved in March 2011, including a reduction of the investment return assumption from 7.8 percent to 7.2 percent, likewise occurred outside of the valuation period covered by Segal's audit and therefore were not evaluated.

We acknowledge the professional manner in which Segal staff performed this independent actuarial audit and appreciate the cooperation provided by staff of ETF and its consulting actuary.