APRIL 22, 2022: After nearly a year of preparation by our Association, debate is about to begin in the House of Representatives on proposals that would make improvements to the annual COLA benefit paid to public retirees. Mass Retirees has sponsored two amendments to the House FY23 budget – #1136 filed by Representative Ken Gordon and #1411 filed by Representative Mark Cusack.
Before I get into the specifics of the two amendments, let me first remind you of two upcoming Mass Retirees meetings.
Virtual Tele-Town Hall Meeting: Friday, April 29, 2022, at 1:00 PM EST. Participate in this members-only event by either receiving the automated connection call from us at the start of the meeting or by calling the toll free number published on your Mass Retirees memebrship card and within our newsletter.
North Shore Area Meeting: Friday, May 6, 2022, at 11:00 AM. This meeting takes place at the Peabody Marriott, 8A Centennial Dr., Peabody – exit 28 off 128. It marks our first in-person meeting since March 2020.
It goes without saying that the ongoing spike in inflation continues to extract a severe toll on public retirees. While the legislature and the vast majority of local retirement boards have consistently granted annual cumulative 3% COLAs, the benefit has struggled to keep pace with real inflation. This is particularly true of those retirement systems that have maintained the same $12,000 COLA base that was established in 1998 – some 24 years ago!
Over the past decade the Commonwealth’s PRIT Fund has performed exceedingly well, producing record setting investment returns, with the fund surpassing the $100 billion mark for the first time in 2021. Last year, PRIT returned over 20% after fees – nearly triple the 7% assumed rate of return and marking the 3rd consecutive year of asset gains above the assumed rate. Returns across the 102 local retirement systems, of which the majority are invested through PRIT, have been equally robust.
We strongly believe that it is time to share a portion of the great success of our public pension systems with retirees. This is particularly important given the current economic pressures of inflation.
Traditionally, the annual State Budget has served as the main vehicle for COLA funding and benefit improvements. The House of Representatives will begin debate on its version of the FY23 budget early next week. Our Association has filed the following two amendments:
- Establishes a 5.9% State and Teacher retiree COLA for FY23 only, which represents the federal Consumer Price Index (CPI) applied to Social Security benefits in 2022. Local COLA base is set by local retirement board, in conjunction with the local government.
- The average annual Social Security benefit paid in Massachusetts was nearly $20,000 in 2021, setting the average Social Security COLA at roughly $1,180 in 2022. However unlike our pension plans, Social Security operates on a pay-as-you-go basis.
- The COLA for State and Teacher retirees is currently capped on a $13,000 base, meaning their maximum COLA base will be $390. However, with a 5.9% COLA increase the maximum COLA would be $767 for this year.
- The amendment also allows local retirement systems, by a vote of the local retirement board, to pay an FY23 COLA up to the 5.9% CPI.
- Increases the State and Teacher Retirees COLA base to $16,000 in $1,000 increments over the next three fiscal years.
- Current base was set at $13,000 in 2011, marking the only increase since 1998.
- Local retirement systems establish their own COLA base, in conjunction with their local legislative body. Range is currently $12,000 to $18,000, with a majority at a base higher than $13,000.
A big Thank You must go out to Representatives Gordon and Cusack, both of whom welcomed the opportunity to carry their respective amendments on the House floor. Both legislators are members of the House Leadership Team, with Cusack serving as Chairman of the Revenue Committee and Gordon serving as Chairman of the Public Service Committee.
We also owe our gratitude to the more than 55 State Representatives who have already signed on to these amendments as cosponsors. With support from both leading Democrats and Republicans in the House – including House Republican Leader Brad Jones – this is truly a bipartisan effort. Please click on the amendment titles above to read the proposals, as well as see the list of cosponsors arranged in the order in which they signed on. House members have until debate on the COLA amendments begin to be added as a cosponsor.
We often receive questions from members, particularly newer retirees, asking why a COLA base exists instead of applying the annual percentage to the full pension. The short answer is that our public retirement systems were not designed to accommodate full COLAs on 100% of a retiree’s pension. As a defined benefit pension plan, the system and benefits must be fully funded over a period of time – unlike Social Security, which operates on a pay-as-you-go basis and is funded through the federal Payroll Tax.
Since the early 1970s, a major focus of Mass Retirees has been to advocate and fight for incremental improvements to the COLA base. The challenge we have is striking a balance between the needs of retirees to keep pace with inflation and the legal requirements to properly fund new benefits.
That said, we believe that the unprecedented success of our public pension fund investments over the past decade now present a unique opportunity for improvements to be made at both the state and local levels.
As we have repeatedly stated, this success must be shared with public retirees for whom the retirement systems exist.
We have made a strong argument to the House Leadership, not only as to why these improvements are needed, but, importantly, how the Commonwealth and local retirement systems can afford the new benefits.
In closing, I want to thank those members who have taken the initiative to contact your local State Rep. about these issues. Some legislators have reported that they heard from you, even before receiving our formal request. These efforts certainly help!