Local Retirement Systems Empowered to Increase COLA Up To 5%
APRIL 27, 2022: Today, the Massachusetts House of Representatives unanimously approved a 5% increase in the FY23 cost-of-living adjustment (COLA) for State and Teacher Retirees. The measure also contains authorization for the state’s 102 local retirement systems to increase local COLAs from 3-5% by a majority vote of the retirement board.
If approved by the State Senate and then Governor Baker, the 5% COLA will be the largest percentage paid since 1992 when the FY93 COLA was 5% on a base of $9,000. In 1975, at the height of runaway inflation, the state approved an 11% COLA on a $6,000 base – which remains the largest increase on record.
The Mass Retirees sponsored amendment was carried by the House Chairman of the Joint Committee on Public Service Ken Gordon (D-Bedford) and cosponsored by a large bipartisan group of 98 State Representatives – including both the Democrat and Republican leadership within the House.
A second COLA amendment, which would have increased the State/Teacher COLA base, was set aside and not acted on at this time. Whether reviewed by the Senate during budget deliberations in May or through the Commonwealth’s revised pension funding schedule set to take effect in FY24, the COLA base remains a central point of discussion.
“Given the current impact of inflation, our focus is getting more money in our members hands ASAP. Increasing the percentage paid in FY23 beyond the scheduled 3% is the best way to achieve that goal,” said Association President Frank Valeri, who also serves as an elected member of the State Retirement Board. “We have also been contacted by a number of local retirement board members, who hoped to have the opportunity to approve a larger COLA for local retirees. The language passed today by the House does just that by putting the decision for FY23 in the hands of local retirement officials.”
“I want to thank Chairman Gordon, along with Revenue Chairman Mark Cusack, for spearheading the issue of the COLA for us on the House floor. Going all the way back to the early 1970s, the COLA has always been one of the most important issues for public retirees,” explained Mass Retirees CEO Shawn Duhamel. “At the same time, it is also one of the most expensive benefits in the budget. This is especially true when accounting for the fact that all MA COLAs are permanent and cumulative, which drive long-term pension costs into the hundreds of millions just for modest improvements.
“For this reason, I want to say a special thank you to House Speaker Ron Mariano and Ways and Means Chairman Aaron Michlewitz, along with House Republican Leader Brad Jones. This would not have been approved without their support.”
The State, Teacher, and nearly all local pension funding schedules include the assumption to pay an annual 3% COLA on a fixed COLA base. A special act of the legislature is required to go beyond 3%, which is what the House has now set in motion for FY2023.
Also included in the FY23 State Budget is an appropriation of $3,744,032,959 billion to fund the Commonwealth’s share of the State and Teacher pension costs. FY23 marks the 3rd and final year of the 3-year pension appropriation cycle, which is set to be revalued this year to take effect July 1, 2023. The new schedule will capture pension fund performance from 1/1/2019 through 12/31/2021 – a time period of robust asset gains.
The State Senate is anticipated to take up its version of the FY23 budget during the week of May 23rd. As per the legislative process, the House and Senate will then negotiate the two versions of the budget in conference committee, before sending a final unified budget to the governor this summer.