Committee Releases COLA Base Increase

July 06 - Calls For Extension of Pension Schedules - Public retirees and survivors are on track to receive an increase in the base to which the annual cost-of-living adjustment is applied. In May, the Joint Committee on Public Service favorably released H4940, the Association’s bill to set a new COLA base at the state and local levels.

{quote_top}The bill, which is the result of nearly two years of intense lobbying and actuarial studies, would establish a new base of $16,000. Currently, the base is set at $12,000, a level that has existed since 1998.

Early this year, Public Service Chairmen Representative Jay Kaufman (D-Lexington) and Senator Patricia Jehlen (D-Somerville) made a commitment to act on the bill this session. Hopes now are that H4940 can be passed before the end of the formal session in July and thus take effect for a July 2007 COLA.

“This bill has been in the works for the past several years. We started this process with an outside section of the House budget in 2004 with the support of Tom Finneran (then Speaker),” recalls Association President Ralph White. “The fact that the bill is now moving forward is a huge step forward for our members.”

Funding Schedule Changes

One significant aspect of H4940 is that it extends the current date of 2023, for the state and teachers’ retirement systems to achieve fully funded status, to 2026, in order to accommodate a $16,000 base. It also allows local systems, that must satisfy their unfunded liability no later than 2028, to adopt a higher base and extend their schedules beyond that date.

The decision by the Public Service Committee to openly call for an adjustment in the pension funding schedules is a bold step, one that was avoided by the Public Employee Administration Commission (PERAC) when the agency issued its report on the COLA base last year.

PERAC’s COLA study was prompted by the budget-rider crafted by our Association in 2004. The study language called on  PERAC to conduct a full actuarial study of the COLA and suggest means by which it could be raised in thousand dollar increments.

According to the report issued by PERAC last fall, the cost of raising the COLA base, for the state and teachers’ systems, from their current level of $12,000 to a new $16,000 base is $100 million in the first year. To push the base to $20,000 would cost nearly $200 million.

What the report did not detail was how the funding schedule can be adjusted to incorporate the costs of the new COLA, without a new appropriation. “Jay Kaufman and Pat Jehlen understood that the only way to boost the base was to find a way to roll the cost into the schedule,” explained White. “They went back to PERAC, asked for and got the detailed numbers on how that can be done.”

“We really have to give thanks to Representative Kaufman and Senator Jehlen for their leadership on this issue,” said Legislative Liaison Shawn Duhamel. “It was a bold but logical step.”

Once passed into law, the new COLA base would automatically go into effect for state and teacher retirees as early as July 1, 2007. Due to the provisions of Proposition 2 1/2, the new base must be local option for all local retirement systems.