The Finance and Personnel Committee heard a detailed presentation on the City of Milwaukee Employees’ Retirement System (ERS) 2026 proposed budget, which shows a total ERS-related budget request of $261.1 million and an employer pension contribution for the city of $193.9 million.

Why it matters: The ERS employer contribution is one of the city’s largest recurring budget items. Committee members pressed ERS staff and the system actuary on why the 2026 contribution rose above earlier projections and on how Act 12 and recent salary increases interact with market volatility to affect near-term contributions.

What officials reported: Brian Reinders of the Budget Management Division opened with the budget office figures: the proposed 2026 ERS budget totals $261.1 million, of which an estimated $193.9 million is the city’s employer pension contribution; the mayor’s recommended budget also includes an estimated $10.3 million employer contribution to the Wisconsin Retirement System (WRS) for employees hired on or after Jan. 1, 2024. The ERS largest revenue source in the budget presentation is local sales tax revenue, which the budget office estimated at $156.5 million going to the pension system in 2026; property tax levy support was listed at about $76.7 million.

System presentation and causes of the increase: Director Jerry Allen summarized the ERS’s community impact, operations and investment performance. He said the system is “approaching $500,000,000 in pension payouts” annually and that a substantial share of those dollars flow to city residents. Director Allen and independent actuary Larry Langer emphasized two main drivers of the 2026 contribution increase: (1) salary experience that exceeded the actuary’s assumptions for the valuation period, and (2) the mechanics of Act 12 and annual valuations, which no longer permit the previous stable-contribution policy and require more immediate recognition of funding changes. Langer said of projections, “they’re always gonna be wrong,” characterizing the inherent uncertainty in forward-looking actuarial work.

Investment performance and assumptions: ERS staff reported a year-to-date investment return in excess of long-term expectations (10.31% year-to-date as noted in the presentation) and an assumed long-term return of 6.8%. Chief investment staff described the system’s asset mix (including domestic and international equities, private real estate and fixed income) and the effort to “thread the needle” — to derisk the portfolio enough to dampen volatility while still pursuing the 6.8% long-term return target.

How Act 12 factors in: Committee members were reminded that legislative changes referenced as Act 12 eliminated the former five-year stable funding policy; instead, valuations and contribution requirements are determined on an annual actuarial basis. Act 12 prescribes certain valuation assumptions and closed some plan features prospectively; committee discussion and actuary comments explained that those changes, combined with recent salary increases and remaining recognition of prior market losses, contributed to a higher 2026 employer contribution than earlier projections had shown.

Numbers and outlook: The budget office showed the city employer contribution rising from an estimated $178 million (2025 estimate) to $193.9 million in 2026 in the mayor’s proposal, with multi-year forecasts showing further increases under certain return scenarios. Actuary slides illustrated that a single year’s deviation in investment returns or salary experience can change the contribution by tens of millions of dollars in following years because amortization and smoothing rules spread the effects across multiple valuation years.

Questions and follow-up: Committee members asked for further detail on causes (for example, whether particular salary step changes or reclassifications were the primary driver) and on the WRS projection; staff committed to provide additional breakdowns and model scenarios if requested. Aldermen also asked about the cost implications of ongoing arbitration or negotiated pay increases; actuaries said such changes can be modeled but the standard annual valuation process is the principal mechanism for incorporating realized payroll and demographic data.

Cybersecurity and technology notes: Director Allen and ERS staff said they are proceeding cautiously on adopting generative AI tools because of data sensitivity; Allen said security is the system’s “number one objective” and described efforts to keep member data on segregated servers and to pursue in-house or tightly controlled, on-premises AI solutions.

Ending note: Committee members did not adopt any pension-system policy changes at the meeting; they received the ERS budget briefing, asked for additional data and scheduled follow-up oversight as part of the budget review process.