Quest For Higher COLA Base Continues

SEPTEMBER 2001
- Major Challenge For Association - Our Association’s bill, H335, which would raise the current COLA base
of $12,000 to $20,000 for state and teacher retirees, with the same
option at the local level, remains in the Joint Committee on Public
Service.

The base is the maximum
portion of any pension to which the 3% cost-of-living (COLA) increase
can be applied. A 3% COLA applied to the $12,000 base equates to a $360
annual increase.

“H335 is being held
by the Public Service Committee at our request,” explained Association
President Ralph White. “If the bill had been reported out of the
Committee at the June 30 deadline, it faced almost certain death. The
actuarial cost for state and teacher retirees furnished by Jim Lamenzo,
who is the actuary for PERAC, placed the $20,000 base well out of reach
- $182 million to be exact.

“In
fact, the figures for a possible compromise base of $14,000 or $16,000
were $50 million and $99 million respectively. These numbers were much
higher than we anticipated. Right now we’re in a holding pattern trying
to find an alternative to our funding schedule.”

Funding Schedule Is Key

Under
current law, the state is under a funding schedule that not only
addresses future liabilities as they occur, but also requires all past
pension liabilities to be fully funded by the year 2018.

The
funding schedule can be compared to a mortgage, which the state has
obligated itself to pay off by 2018. The $12,000 base is currently
included in the cost of that mortgage, not only for current retirees,
but also for employees whose benefits must be funded in advance of
their retirement. It is this changeover from the old pay-as-you go
pension plan, which built up huge debts, that makes increased benefits
so difficult at this time.

In 1997
and 1998 when the state and local governments adopted a $12,000 base,
up from the previous $9,000 base, there was a major increase in the
state and local government funding schedules. Many of the local
retirement systems “re-financed” their funding schedules by extending
their full-funding date to 2028.

“If
the state were to extend its funding schedule by five or ten years,
that might take care of a higher base without any increase in the
annual appropriation. I don’t see that happening,” said White. “If we
had maintained a pension fund investment return like 1999 (24%) for
another year or two it’s possible the state could have done a new
valuation showing these gains, and included a higher base without any
annual increase in the appropriation.”

White
was quick to point out that the Association hasn’t given up. “It’s true
this has been a temporary setback... a bump in the road. But we haven’t
given up by any means. We are now looking at an alternative strategy,”
he said. “I’m optimistic we can get this worked out, and we certainly
don’t want to hold up any local retirement systems that may be in a
position to raise their base at this time.

“I
also want to make it clear that Jim Lamenzo is on our side. He was just
as disappointed as we were when the numbers were crunched. His 1997
numbers disproved our opponents’ assertion that a 3% COLA, on a $12,000
base was not fiscally responsible. And there is a fiscally responsible
answer to our quest for a higher base. We will prove it, yet.”

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