April 21, 2023: As we reported last week, your Association has filed one amendment to the FY24 State Budget proposal (H.3900) that is set to be debated in the House of Representatives next week. Before I walk you through the specifics, as well as provide an update on local COLA activities, let me first remind those members in the Fitchburg / Leominster area of our upcoming area meeting.
Thursday, April 27, 2023, 11:00 AM
Leominster-Fitchburg Elks #1237
134 N. Main Street, Leominster, MA 01453
Cash Door Prizes Will be Drawn at the Conclusion of the Meeting
With the support of House Revenue Committee Chairman Mark Cusack, we have filed Amendment 808: COLA Base for public retirees. As of Thursday afternoon, we have nearly 3-dozen House cosponsors on the amendment. Click here to view amendment 808 and the current list of cosponsors.
Our proposal would increase the COLA base for members of the State and Teachers’ Retirement Systems to $16,000 as of July 1, 2023 – the start of FY24. The current $13,000 base was established in 2011, which has been the only increase in the State/Teacher base over the past 26-years. An increase is well overdue!
That said, it is important for our members to have the full context of what we have proposed and why. We realize that a $3,000 increase in the base (to $16,000) after 12 years at $13,000 may seem modest or even small. There is also no escaping the fact that 26 years after the passage of COLA Reform in 1997 the State and Teacher COLA base has fallen behind where we hoped it would have been in 2023.
When it comes to the COLA base, at either the state or local level, the biggest challenge to overcome is always the high cost of the benefit. Combined, the State and Teachers’ Retirement Systems serve roughly 137,000 retirees and surviving spouses – all of whom receive a COLA. And because our COLA benefit is paid regularly and is cumulative, public pension funding and accounting rules require the benefits to be funded over the lifetime of existing and future retirees.
According to the actuarial analysis of our proposal, a $3,000 COLA base increase would add some $1.5 billion in new unfunded liability to the Commonwealth’s Pension Funding Schedule, and potentially $150 million to the state’s budget appropriation the next time the system is revalued for FY27. Each $1,000 increase adds roughly $50 million in new annual costs to the system. The state’s pension funding appropriation for FY24 will be just over $4.1 billion.
However, ample evidence supports our belief that these new costs can be offset (if not entirely absorbed) by pension fund investment gains generated by the PRIT Fund prior to the FY27 valuation.
By all measurements, the Commonwealth’s PRIT Fund continues to outperform its benchmarks. Over the past 10-years the fund has posted an annualized return of 8.20%, with its assumed rate of return at 7%. While 2022 was a down market, Q1 of 2023 resulted in a 3.73% return. More importantly, we should not forget that 2021 produced a return exceeding 20% with the 3-year average coming in at 11.67%.
Similar results have been posted across the 102 local retirement systems, which is why in 2022 alone 43 local retirement boards and their corresponding legislative bodies approved COLA base increases for local retirees. Our strong belief is that the success of our pension fund must be shared with retirees, for whom the fund exists.
This concept also applies to the local adoption of the additional 2% COLA for FY23. As of Thursday, the local acceptance count stands at 68 of the 102 retirement boards having approved the increase. Of that number, 54 local governments have fully approved the increase bringing the FY23 COLA to 5%. The additional portion of the COLA will be paid retroactive to July 1, 2023.
Several of these systems have approved both a COLA base increase, as well as the additional 2% within the past year. Notable amongst these systems is Bristol County, which approved both a $20,000 base and the additional 2% COLA within the past month!
Speaking of county or regional retirement systems, Bristol has joined Norfolk County in fully approving the added COLA for FY23. We are aware of at least one if not two additional county systems on the verge of achieving full approval from the select boards of their participating towns.
With few notable exceptions, our local retirement systems have met the challenge and are sharing the success of pension fund investments with the retirees. Our hope is that the state will now do the same for State and Teacher retirees.
Members can help by contacting your local State Representative and respectfully ask that they cosponsor and support Amendment 808. Click here to find your Representative’s contact information. With debate taking place next week, we ask that you call or email their State House office rather than send a letter.
We will post updates online and through our recorded news hotline as the budget debate unfolds next week. I’m cautiously optimistic that we will have good news to share in next Friday’s message.
With great appreciation,
Chief Executive Officer
Mass Retirees Association