More than half the states have refreshed their cost-of-living adjustments (COLAs) to public-sector pension plans in the last six years. A recent report by the National Association of State Retirement Administrators, “NASRA Issue Brief: Cost-of-Living Adjustments,” outlines the changes those states have made.
The states have made those changes in response to low inflation and as part of their effort to control costs and ensure that the plans remain sustainable, according to the report. It also notes that some states have enacted measures that provide for COLA increases if inflation increases or fiscal conditions get better.
Following is a look at the changes states made to public-sector COLAs between 2009 and 2015.
Arizona
Public Safety Personnel: Legislation enacted in 2011 created a new benefits tier that ties the permanent benefit increase (PBI) for those retired after Aug. 1, 2011 to the plan’s actuarial funding level and increases the investment return threshold needed to trigger a PBI from 9% to 10.5%.
State Retirement System: 2013 legislation eliminated the permanent benefit increase for members hired on or after Sept. 13, 2013.
California
Teachers: Members who performed creditable service on or after Jan. 1, 2014 will have their existing improvement factor guaranteed in exchange for contribution increases. The improvement factor cannot be reduced for these members. For members who retired before that date, the legislature reserves the right to reduce the improvement factor.
Colorado
Local government, school and state employees: Legislation enacted in 2010 cut the COLA from an automatic 3.5%.
Connecticut
State employees: A 2011 agreement between the state and public-sector unions cut the minimum COLA for employees who retire after Oct. 1, 2011.
Florida
Retirement system: Legislation enacted in terminated the automatic 3% compounded COLA for all service credits earned after July 1, 2011.
Hawaii
Employees’ Retirement System: The automatic COLA was reduced from 2.5% to 1.5%, simple, for those who become ERS members after June 30, 2012.
Illinois
Municipal: Legislation enacted in 2010 reduced the COLA for new hires as of Jan. 1, 2011 from an automatic 3%, simple.
State employees, teachers and university employees: Legislation enacted in 2010 reduced the COLA for new hires from an automatic 3% , compounded. A measure enacted in 2013 cut the COLA formula for current workers and new hires, but the Illinois Supreme Court overturned that law in 2015.
Kansas
Public Employee Retirement System: In 2012, a measure was enacted that removed the automatic 2% COLA for those hired after June 30, 2009; it also established an optional self-funded COLA in a new cash balance plan for those hired after Dec. 31, 2014. Legislation creating Kansas PERS Tier 3 was enacted in 2012 that eliminated the Tier 2 COLA. The only employees eligible to receive the latter COLA are those who were retired and returned to work on or after June 30, 2009 and retired before July 1, 2012.
Kentucky
County employees and Employee Retirement System: A measure enacted in 2011 mandates that a COLA be granted only if the system is more than 100% funded or if the legislature prefunds the COLA.
Louisiana
State Employee Retirement System, teachers: Legislation enacted in 2014 tied future COLAs to plan funded status, limited COLAs to every other year if funds are available, and capped deposits into the accounts from which COLAs are funded.
Massachusetts
State Employee Retirement System, teachers: Effective in 2011, the benefit to which the COLA applies increased from the first $12,000 to $13,000.
Maryland
Public Employee Retirement System, teachers: For service earned after June 30, 2011, the COLA was lowered from the consumer price index (CPI) up to 3%, compounded, to CPI capped at 2.5%, or 1%, depending on investment return.
Maine
State employees, teachers: Effective July 1, 2011, the COLA of CPI up to 4%, compounded, was suspended for three years, after which the cap and portion of the benefit to which the COLA applies was reduced.
Michigan
School employees: Employees hired after June 30, 2010 participate in a hybrid plan that does not provide a COLA.
Minnesota
Public Employee Retirement System, state employees, teachers: The legislature enacted a measure that reduced the auto-COLA from 2.5% in 2010.
Missouri
Public Education Employee Retirement System: In 2011 the PERS Board changed the automatic, compounded COLA from one based on the CPI, not to exceed 5%, to 0%, 2% or 5%, depending on whether the CPI is negative, positive and above or below 5%, respectively. It also now is subject to a lifetime cap.
Teachers: In 2011, the PERS Board changed the automatic, compounded COLA in the same way as it did for the state PERS; however, the teachers’ system is not subject to a lifetime cap.
Mississippi
Public Education Employee Retirement System: Legislation enacted in 2011 increased the age at which COLA compounding begins from 55 to 60.
Montana
Public Employee Retirement System, teachers: Legislation enacted in 2011 cut the automatic COLA from 3% compounded and tied its provision to the PERS funding ratio.
Nebraska
Schools: Legislation enacted in 2013 created a new tier, featuring a reduced maximum COLA, for school employees hired on or after July 1, 2013.
New Jersey
Public Employee Retirement System, police and fire personnel, teachers: Legislation enacted in 2011 suspended the automatic COLA that was based on 60% of the CPI.
New Mexico
Public Employee Retirement Association: Legislation enacted in 2013 reduced the automatic COLA from 3% compounded.
Teachers: Legislation enacted in 2013 reduced the automatic COLA from a range of 2%-4% depending on retiree length of service. All COLA reductions cease upon ERB’s attainment of a 100% funding level. The law was challenged, and upheld by the NM Supreme Court in 2013.
Nevada
Police and fire personnel, regular employees: Legislation enacted in 2015 reduced the COLA for employees hired on or after July 1, 2015. Newly hired workers will receive a COLA of 2% after three years of receiving benefits, 2.5% after six years, and the lesser of 3% or the preceding year’s increase in CPI after nine years and thereafter.
Ohio
Public Employee Retirement System, teachers: Legislation enacted in 2012 pinned the COLA to the CPI, up to 3% for all active members. This includes a five-year transition period. It applies to members retiring within the first five years after Jan. 7, 2013.
Police and fire personnel: Legislation enacted in 2012 reduced the COLA and pinned it to the CPI; its onset delayed for nearly all members.
Teachers: Legislation enacted in 2012 provides that members who retire on or after Aug. 1, 2013 receive a COLA on the fifth anniversary of their retirement.
Oklahoma
Public Employee Retirement System, teachers: Legislation enacted in 2011 requires that future COLAs be funded.
Oregon
Public Employee Retirement System: A measure was enacted that provides for supplementary COLA payments depending on benefit levels over six years. The Oregon Supreme Court, however, rejected this adjustment as unconstitutional regarding benefits earned before the law’s effective date and invalidated supplementary payments.
Rhode Island
Employee Retirement System, municipal employees: In late 2011, the legislature revised the COLA from an automatic 3% compounded, effective July 1, 2012.
South Carolina
Retirement System, police personnel: Legislation enacted in 2012 subjects the COLA to an annual cap.
South Dakota
Public Employee Retirement System: In 2010, the legislature revised the COLA provision from an automatic 3.1%.
Utah
Noncontributory employees: The legislature reduced the maximum COLA for those hired after June 30, 2011 from 4% to 2.5%.
Virginia
Retirement System: Effective Jan. 1, 2013, COLAs for non-vested members are capped at 3% rather than 5%; for early retirees, COLA onset is delayed until July 1 one year following retirement.
Washington
Public Employee Retirement System Plan 1, Teachers Plan 1: Legislation enacted in 2011 eliminated the automatic COLA which provided a postretirement benefit increase based on a money/years of service calculation.
Wyoming
Public Employee System: Legislation enacted in 2012, the COLA was terminated until plan funding reaches 100%.
The states have made those changes in response to low inflation and as part of their effort to control costs and ensure that the plans remain sustainable, according to the report. It also notes that some states have enacted measures that provide for COLA increases if inflation increases or fiscal conditions get better.
Following is a look at the changes states made to public-sector COLAs between 2009 and 2015.
Arizona
Public Safety Personnel: Legislation enacted in 2011 created a new benefits tier that ties the permanent benefit increase (PBI) for those retired after Aug. 1, 2011 to the plan’s actuarial funding level and increases the investment return threshold needed to trigger a PBI from 9% to 10.5%.
State Retirement System: 2013 legislation eliminated the permanent benefit increase for members hired on or after Sept. 13, 2013.
California
Teachers: Members who performed creditable service on or after Jan. 1, 2014 will have their existing improvement factor guaranteed in exchange for contribution increases. The improvement factor cannot be reduced for these members. For members who retired before that date, the legislature reserves the right to reduce the improvement factor.
Colorado
Local government, school and state employees: Legislation enacted in 2010 cut the COLA from an automatic 3.5%.
Connecticut
State employees: A 2011 agreement between the state and public-sector unions cut the minimum COLA for employees who retire after Oct. 1, 2011.
Florida
Retirement system: Legislation enacted in terminated the automatic 3% compounded COLA for all service credits earned after July 1, 2011.
Hawaii
Employees’ Retirement System: The automatic COLA was reduced from 2.5% to 1.5%, simple, for those who become ERS members after June 30, 2012.
Illinois
Municipal: Legislation enacted in 2010 reduced the COLA for new hires as of Jan. 1, 2011 from an automatic 3%, simple.
State employees, teachers and university employees: Legislation enacted in 2010 reduced the COLA for new hires from an automatic 3% , compounded. A measure enacted in 2013 cut the COLA formula for current workers and new hires, but the Illinois Supreme Court overturned that law in 2015.
Kansas
Public Employee Retirement System: In 2012, a measure was enacted that removed the automatic 2% COLA for those hired after June 30, 2009; it also established an optional self-funded COLA in a new cash balance plan for those hired after Dec. 31, 2014. Legislation creating Kansas PERS Tier 3 was enacted in 2012 that eliminated the Tier 2 COLA. The only employees eligible to receive the latter COLA are those who were retired and returned to work on or after June 30, 2009 and retired before July 1, 2012.
Kentucky
County employees and Employee Retirement System: A measure enacted in 2011 mandates that a COLA be granted only if the system is more than 100% funded or if the legislature prefunds the COLA.
Louisiana
State Employee Retirement System, teachers: Legislation enacted in 2014 tied future COLAs to plan funded status, limited COLAs to every other year if funds are available, and capped deposits into the accounts from which COLAs are funded.
Massachusetts
State Employee Retirement System, teachers: Effective in 2011, the benefit to which the COLA applies increased from the first $12,000 to $13,000.
Maryland
Public Employee Retirement System, teachers: For service earned after June 30, 2011, the COLA was lowered from the consumer price index (CPI) up to 3%, compounded, to CPI capped at 2.5%, or 1%, depending on investment return.
Maine
State employees, teachers: Effective July 1, 2011, the COLA of CPI up to 4%, compounded, was suspended for three years, after which the cap and portion of the benefit to which the COLA applies was reduced.
Michigan
School employees: Employees hired after June 30, 2010 participate in a hybrid plan that does not provide a COLA.
Minnesota
Public Employee Retirement System, state employees, teachers: The legislature enacted a measure that reduced the auto-COLA from 2.5% in 2010.
Missouri
Public Education Employee Retirement System: In 2011 the PERS Board changed the automatic, compounded COLA from one based on the CPI, not to exceed 5%, to 0%, 2% or 5%, depending on whether the CPI is negative, positive and above or below 5%, respectively. It also now is subject to a lifetime cap.
Teachers: In 2011, the PERS Board changed the automatic, compounded COLA in the same way as it did for the state PERS; however, the teachers’ system is not subject to a lifetime cap.
Mississippi
Public Education Employee Retirement System: Legislation enacted in 2011 increased the age at which COLA compounding begins from 55 to 60.
Montana
Public Employee Retirement System, teachers: Legislation enacted in 2011 cut the automatic COLA from 3% compounded and tied its provision to the PERS funding ratio.
Nebraska
Schools: Legislation enacted in 2013 created a new tier, featuring a reduced maximum COLA, for school employees hired on or after July 1, 2013.
New Jersey
Public Employee Retirement System, police and fire personnel, teachers: Legislation enacted in 2011 suspended the automatic COLA that was based on 60% of the CPI.
New Mexico
Public Employee Retirement Association: Legislation enacted in 2013 reduced the automatic COLA from 3% compounded.
Teachers: Legislation enacted in 2013 reduced the automatic COLA from a range of 2%-4% depending on retiree length of service. All COLA reductions cease upon ERB’s attainment of a 100% funding level. The law was challenged, and upheld by the NM Supreme Court in 2013.
Nevada
Police and fire personnel, regular employees: Legislation enacted in 2015 reduced the COLA for employees hired on or after July 1, 2015. Newly hired workers will receive a COLA of 2% after three years of receiving benefits, 2.5% after six years, and the lesser of 3% or the preceding year’s increase in CPI after nine years and thereafter.
Ohio
Public Employee Retirement System, teachers: Legislation enacted in 2012 pinned the COLA to the CPI, up to 3% for all active members. This includes a five-year transition period. It applies to members retiring within the first five years after Jan. 7, 2013.
Police and fire personnel: Legislation enacted in 2012 reduced the COLA and pinned it to the CPI; its onset delayed for nearly all members.
Teachers: Legislation enacted in 2012 provides that members who retire on or after Aug. 1, 2013 receive a COLA on the fifth anniversary of their retirement.
Oklahoma
Public Employee Retirement System, teachers: Legislation enacted in 2011 requires that future COLAs be funded.
Oregon
Public Employee Retirement System: A measure was enacted that provides for supplementary COLA payments depending on benefit levels over six years. The Oregon Supreme Court, however, rejected this adjustment as unconstitutional regarding benefits earned before the law’s effective date and invalidated supplementary payments.
Rhode Island
Employee Retirement System, municipal employees: In late 2011, the legislature revised the COLA from an automatic 3% compounded, effective July 1, 2012.
South Carolina
Retirement System, police personnel: Legislation enacted in 2012 subjects the COLA to an annual cap.
South Dakota
Public Employee Retirement System: In 2010, the legislature revised the COLA provision from an automatic 3.1%.
Utah
Noncontributory employees: The legislature reduced the maximum COLA for those hired after June 30, 2011 from 4% to 2.5%.
Virginia
Retirement System: Effective Jan. 1, 2013, COLAs for non-vested members are capped at 3% rather than 5%; for early retirees, COLA onset is delayed until July 1 one year following retirement.
Washington
Public Employee Retirement System Plan 1, Teachers Plan 1: Legislation enacted in 2011 eliminated the automatic COLA which provided a postretirement benefit increase based on a money/years of service calculation.
Wyoming
Public Employee System: Legislation enacted in 2012, the COLA was terminated until plan funding reaches 100%.
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