A 5.9% COLA

10/15/2021 Weekly Update, By Shawn Duhamel

If you have read our September newsletter or watched/read any of my recent weekly updates, then you know that a major focus of our ongoing work is to make improvements to the annual COLA or cost-of-living adjustment. Wednesday’s news that the CPI is now 5.9% only bolsters our argument that more needs to be done in this area.

With an annual calculation based on the federal fiscal year (October 1 through September 30), the CPI or Consumer Price Index is used as the barometer for annual inflation. While the real impact of inflation is felt throughout the economy every day, few observers predicted the CPI would come in as high as 5.9% – a 40-year high. The last time inflation trended this high Ronald Reagan was president and I was still in grade school!

Watch today’s video report here!

Over the past four decades the CPI has averaged well below 4%, with the average over the past 20-years coming in at less than 3%.

There is no doubt that inflation is on the rise. As the economy has struggled to recover from the pandemic, prices of many goods and services have steadily increased. Whether these increases prove to be temporary or “transitory” (as the Federal Reserve refers to the matter) remains to be seen. What we do know is that we are now paying more for groceries, gas and most essential day-to-day items than we were a year ago.

This causes us reason to be concerned. As retirees, our members are particularly vulnerable to inflation. And unusually high inflation presents an even bigger concern for retirees.

Retirees receiving a Social Security benefit will receive a 5.9% COLA in January 2022, which will be paid on the full amount of the benefit. In Massachusetts the average Social Security benefit is now just over $19,000 a year.

While the CPI is also used to determine pension COLAs, it is statutorily capped at 3% for local retirement systems. COLA benefits for members of the State and Teachers’ Retirement Systems are determined by the governor and legislature through the annual budget process.

Given the unexpected nature of the 5.9% CPI and the ongoing impact of inflation on public retirees, we are now developing a legislative proposal that would grant local retirement boards the authority to pay a COLA above 3% for FY23. We are also urging the legislature, as well as Governor Baker, to grant a State/Teacher COLA based on the 5.9% CPI next July.

As we detailed in our September newsletter, our public retirement systems can well afford a one-time boost to match the CPI. In our upcoming November edition of The Voice, we further explain the step-by-step details on how the COLA base can be incrementally increased.

It deserves repeating: Our public retirement systems have done extraordinarily well over the past 36-years. This success should not only be celebrated, but also shared with the beneficiaries.

Since publishing the investment return and COLA data in August, we have heard from a growing number of retirement board members, as well as elected municipal officials, who are making plans to push for a COLA base increase for 2022. We are also working with legislative leaders in regard to the COLA base for State and Teacher retirees.

Now that the CPI has been determined and realization that the ongoing impact of inflation is likely to be more than transitory, pension COLA improvements are needed now more than ever. Please look to your copy of the November Voice for further details on local retirement system funding, as well as the process for raising the COLA base.

Before I close out this week’s message, I would like to thank those members who took the time to email or call me following last week’s report on Social Security WEP reform. WEP has proven to be a hard nut to crack and it bothers all of us not being able to deliver immediate needed results for our members. The support and encouragement that our team and I have received from the membership means a lot. Again, thank you for your support.

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With great appreciation,

Shawn

Shawn Duhamel
Chief Executive Officer
Mass Retirees Association

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