Proposed By Governor Healey

Governor Maura Healey has officially proposed the creation of a “Special Commission for State and Teacher COLA”. The proposal comes as a result of an official request from our Association to create a vehicle by which a new mechanism can be created to fund COLA base improvements for retired State Employees and Teachers, as well as create an additional COLA benefit geared toward long-term retirees.

While the current COLA law has worked incredibly well at the local level (for the vast majority of the 102 municipal retirement systems), benefits have lagged behind for retirees belonging to the State and Teachers’ Retirement Systems – where the base has not increased since 2011 when the benefit was improved from $12,000 to $13,000.

The reason for the lack of regular progress with the State and Teachers’ COLA base simply comes down to the cost of increasing the benefit under the current pension funding schedule. As we have said in the past, each $1,000 increase in the State/Teacher base adds $50 million to the annual State Budget and $500 million in new unfunded liability to the Commonwealth’s pension debt. This means that our proposal to increase the COLA base to $16,000 brings an annual cost of $150 million and adds some $1.5 billion in unfunded liability. The high price tag is caused, at least in part, by the assumptions and requirements of the Commonwealth’s pension funding schedule. The State and Teachers’ Retirement Systems are now set to be fully funded in 2036 – just twelve years from now. Within the outside sections of the FY25 State Budget, the governor has proposed the following:

Section 90: Special Commission for State and Teacher COLA

There shall be a special commission analysis and study of cost-of-living adjustments for the members of the state employees’ retirement system and state teachers’ retirement system. The study shall include, but not be limited to, the development of a policy that provides for increases in the maximum base amount, on which timely periodic cost-of living adjustments are calculated, and determination of its fiscal impact. The study shall explore methods of funding timely periodic cost-of-living adjustments for members of said systems and enhanced benefits for long term retired members of said systems.

The commission may request, and shall receive, any and all actuarial reports and studies from the public employee retirement administration commission relevant to support the work of the commission. The commission shall consist of the following members or their designee: the chairs of the house and senate committees on ways and means, the chairs of the joint committee on public service, the secretary of administration and finance, the executive director of the public employee retirement administration commission, and the following 3 members to be appointed by the Governor: 1 of whom shall be a representative appointed by the Retired State, County and Municipal Employees Association of Massachusetts, 1 of whom shall be a representative appointed by the state board of retirement, and 1 of whom shall be a representative appointed by the state teachers’ retirement board. The board shall select a chair.

Not later than February 1, 2025, the commission shall file a report with the clerks of the house of representatives and the senate providing the results of its study and its recommendations, if any, together with proposed drafts of legislation necessary to carry its recommendations into effect.

The language above is modeled after the 1996 Special COLA Commission, which led to the successful passage of the landmark COLA reform law in 1997 (Chapter 17). That law returned the responsibility for the COLA to municipal retirement systems, as well as created the framework that has allowed for regular annual COLAs to be granted to nearly all public retirees over the past 26 years.

“Ralph (White) always impressed upon us that the COLA is at the very cornerstone of this Association. We’re grateful to Governor Healey for including this important language within her budget proposal, further perpetuating his legacy on behalf of public retirees and their families.

“This model worked very well in 1996, spearheaded by Ralph and led to a COLA reform law that has benefited retirees for the past 26 years,” said Association President Frank Valeri. “The challenge we face is due to the massive size of the State and Teacher Retirement Systems, combined with the requirements of the pension funding schedule and the 2036 deadline. A new method is needed to finance these benefits over time.

“While paying off unfunded liability and becoming fully funded is generally a good thing, the short time frame associated with the 2036 date grants little time to pay off new debts. What this means is that a new debt, caused by improved COLA benefits, is more costly to pay for over a short period of time than if the schedule was longer. The goal of the Special Commission will be to develop a mechanism to address the costs of adjusting our COLA base in a more timely fashion during high inflationary times like we have recently experienced.”

Combined, the State and Teachers Retirement Systems have 138,000 retired and some 187,000 active members. When the COLA base is raised, the pension funding schedule is adjusted to account for the new benefit being paid to both current and future retirees. This is due to the fact that the pension funding schedule assumes that a 3% COLA will be routinely paid each year on the allotted COLA base. Pension law and national accounting standards require that all benefits be “funded”, which prohibits benefits to be increased on a pay-as-you-go basis.

For these reasons a new approach is needed, which is why the establishment of a Special Commission is vital. The next step in the legislative process is the release of the House version of the budget in early April, followed by debate later in the month. The Senate will follow suit their budget version in May.

Mass Retirees has asked the legislative leadership to support the creation of the Special Commission and include the governor’s proposal within the House and Senate versions of the budget. If all goes well, the Commission will likely begin its work shortly after the FY25 budget becomes law this summer.

While the work of the Commission is focused on the State and Teachers’ Retirement Systems, new funding methodologies or recommendations could be adopted locally as well.

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