Employees Retirement System COLA Issues 


GSRA's goal is to provide you with the information you need to discuss this issue with others, including your local legislators.

 

ERS Board says NO to COLAs - July 2009

In an unprecedented move, the ERS Board of Trustees awarded NO July Cost of Living Adjustment for retirees of ERS and the Judicial Retirement System.  The official ERS announcement from the website www.ersga.org is reprinted below:

 

     “Employees Retirement System  No COLA was approved for July 2009.  In lieu of this COLA the Board approved a one-time bonus payment for retirees who would otherwise have been eligible for a COLA on July 1, 2009.  The bonus will be equal to 1.5% of the retiree's annual benefit.  This payment will be made in October 2009, by the end of that month. 

     Judicial Retirement System    No COLA was approved for July 2009.  In lieu of this COLA the Board approved a one-time bonus payment for retirees who would otherwise have been eligible for a COLA on July 1, 2009.  The bonus will be equal to 1.5% of the retiree's annual benefit.  This payment will be made in October 2009, by the end of that month.”

     

     The Board strongly implied that the one-time “bonus” would be in lieu of both the July 1, 2009 and January 1, 2010 COLAs.

 

“Bonus” or COLA?  “Bonus” or COLA? –What’s the Difference??

      Before you get too excited about a ‘bonus’, think again.  A ‘bonus’ is a one-time-only payment.  It does NOTHING whatsoever to increase your gross retirement income over time.  How much “bonus” will you receive in October, 2009?  Take your current yearly gross ERS retirement income amount and multiply by .015.  That’s it.  And since the Board has so far taken no official action on any possible COLA effective January 2010, we have to wonder if the intent is to leave us with nothing more than this for all of this year and next.

      The next question is:  What would a paltry 1.5% annual ‘bonus’ mean to the typical retiree over the long term if our annual retirement income never rises above its current level?  Consider Ms. Rosie Retiree, who receives the average annual ERS retirement benefit, before taxes and other withholding, of $27,000.  Under the new “bonus” arrangement, her base ERS retirement income will never be more than this --- $27,000 per year.  Let’s assume that the ERS Board reconsiders and awards this 1.5% “bonus” not just once yearly, but twice, as the COLAs once were. Ms. Rosie Retiree will now receive $27,810 per year ($27,000 in benefits plus two “bonuses” of $405 each). In fact, she will receive that same amount every year, assuming the 1.5% “bonuses” continue to be awarded twice yearly.  With the usual COLAs, however, after 10 years Ms. Retiree’s yearly retirement income would be way more, a little over $36,000 per year.  Under the “bonus” plan, over the next ten years the total gross ERS retirement income Rosie receives will total $278,100, including the “bonuses”.  But with annual COLAs, her total retirement income would amount to almost $317,000 over the next ten years.  Rosie’s so-called “bonus” turns out to be anything but a “bonus”— Rosie will LOSE almost $39,000 over ten years!

      Apparently acting at the direction of the Governor and the Legislative Leadership, the ERS Board has set a dangerous precedent here.  A “bonus” system may save the state hundreds of millions of dollars, but will bring nothing but harm to retirees.

      As GSRA has consistently stated, the Administration and the Leadership have abandoned the long established custom of adjusting employer contributions to accommodate normal market fluctuations in retirement fund earnings so that the 3% annual COLA amount, authorized by law, can be maintained.  Ignoring an honorable 30-year practice, current officials use the artificially low current employer contribution rate as an excuse for not approving COLAs.  So, whatever amount you receive each month from ERS, we all lose unless—and until—our COLAs are fully restored.

      GSRA members observing the June 18 ERS Board meeting noted that the action on the “Bonus” plan seemed very well choreographed and uniformly supported by all Board members.  Most Board members spoke, and virtually all of those supported their decision by (1) referencing the state’s financial crisis and (2) recognizing that salary increases had been denied to active state employees the past two years, would be denied in FY 2010, and would most likely be withheld in FY 2011 as well. At least one Board member stated that he would not support providing COLAs to retirees so long as raises were not granted to active employees.  Other Board members implied as much. 

     One positive action did take place during this meeting.  Prefacing his (lack of) COLA recommendation to the Board, newly reelected ERS Board Chair Russell Hinton requested and received Board approval to develop a policy for consistently awarding COLAs to all plans under its jurisdiction.

 

 

Archival Information


The 2008 General Assembly authorized the Speaker of the House of Representatives to appoint a House Public Retirement COLA Study Committee to review the issue of Cost-of-Living adjustments.  Representative Pat Gardner was appointed Committee Chair and held several meetings to hear testimony and develop recommendations.  The final report can be viewed below:

 

 
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