Local Retirement Boards Vote 3% COLAs

JULY 2002
- State, Teachers OK In Budget - Local retirement boards have moved quickly in approving three percent
cost-of-living increases for their retirees and survivors effective
this July.

At this writing, 98 of
our 104 city, town, county, authority and district retirement boards
have voted for 3% COLAs. One board, Attleboro, voted for a 2.6% COLA.
The remaining five boards have indicated they will be voting for three
percent COLAs prior to July.

Our
Association's 1997 legislation allows local retirement boards to vote
on COLAs each year. Boards have the option of voting for a COLA
determined by the increase in the consumer price index (CPI) as used by
Social Security, if the CPI is less than 3%. The last Social Security
CPI was 2.6%. Or, the Boards can vote for a higher 3% COLA.

"Almost
without exception, the boards have stepped up to the plate and voted
for the three percent," said Association President Ralph White. "And
over the last four years when the CPI totalled 9.8%, they voted for 3%
each year, adding up to 12%."

Although
the law allows a board to vote against a COLA if such payment would
"impair" the retirement system's funding schedule, none have taken this
action despite two successive bear market years, in which a large
number of boards showed negative pension fund investment returns.

"Over
an extended period of time, the boards have done very well in their
pension fund investments. Most are averaging above 10% on an annualized
basis, which is well above their average benchmark of 8.25%. Therefore,
even in a bear market cycle the boards are justified in voting for
three percent," White said.

Waiting For Budget Passage

With
the Acting Governor, the House and the Senate all including three
percent COLAs in their respective '03 budgets, it is assured that state
and teacher retirees will receive 3% COLAs this July.

Because
the House and Senate budgets differ in many regards, a conference
committee consisting of fiscal leaders of both branches will be working
during the month of June to reach an agreement that can be presented to
their members for a vote.

Last year,
it wasn't until late November that a House-Senate budget agreement was
reached, with state and teacher retiree COLA checks paid in December,
retroactive to July.

This year,
although it is possible that a final budget vote could extend into July
or later, it is likely that an agreement will be reached in time for
the COLA increase to take place in the July checks. These are the
checks mailed at the end of July.

Eligibility

Members
retired prior to July 1, 2001 will be eligible for this year's COLA.
Members retired since July 1, 2001 and prior to July 1, 2002, will be
eligible for the Year 2003 COLA.

This
is a statewide payment formula for all retirement systems in the
Commonwealth. The $12,000 base, to which the three-percent is applied,
is also applicable to all retirement systems.

We
have made progress in raising the base, but this will require increased
appropriations to meet the funding liability schedules into which our
retirement systems are locked. It does not appear, at this juncture,
that FY03 will bode well for increased appropriations. But the COLA
base will continue to be a top priority of our Association.

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