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How Did the COLA Change?

In October 2017, SERS’ Board of Trustees approved a three-year cost-of-living adjustment (COLA) suspension for retirees and benefit recipients in 2018, 2019, and 2020. House Bill 49 (HB 49) indexed the COLA to the percentage increase in the CPI-W (the measure of inflation used by Social Security), not greater than 2.5%, with a floor of 0%. Both changes became effective January 1, 2018.

In addition, the Board approved a change to an administrative rule that requires new benefit recipients to wait until the fourth anniversary of their benefit for COLA eligibility. The new standard applies to benefits commencing on and after April 1, 2018. The rule also provides that multiple benefits originating from the same member account not have more than a four-year waiting period in total. 

The changes will not affect the COLA increases retirees received before January 1, 2018. For example, if the “current month” COLA amount on your check stub as of December 1, 2017 was $165, you will continue to receive $165 monthly from 2018 through 2020 (as shown in the sample check stub below). However, your COLA amount will not increase during those years.

The gross amount of your check will remain the same; however, the net amount may change based on your deductions.

What Will the COLA Changes Do?

With no changes, SERS’ actuary predicted the System would not reach 70% funded until 2030. This would likely cause major changes to SERS’ health care.

Due in part to the COLA changes, the System's funded level increased from 66.67% to 70.01% and the amortization period (the amount of time it takes to pay off all pension liabilities) decreased from 28 years to 27 years in FY2017. 

With the changes set forth by the Board and HB49, the System is expected to reach 90% funded by 2034. The 90% level is critical because, at that level, the pension fund is stable and can withstand a market downturn.

Why Were Retirees Who Live on a Fixed Income Included in the COLA Changes?

There are several reasons the COLA changes include retirees:

  1. In 2012, the age and service eligibility pension reform changes affected only active members.
  2. SERS’ actuary determined that more than 60% of the System’s unfunded liabilities are the responsibility of retirees, and any additional pension reform changes needed to include retirees.
  3. The COLA changes address the financial challenges SERS faces, and equally and fairly affect active members and retirees.
How Many Times Has the COLA Changed?

Since the COLA was introduced in 1971, there have been a total of eight COLA and ad hoc changes. Changes included implementing and altering waiting periods, raising and lowering fixed rates (from 1.5% to 3%), using a rate tied to the CPI-W, and one-time increases to allow older retirees to “catch up” with new retirees.