The only significant reform in the Christie Reform Agenda on Pensions calls for “the elimination of additional annual future Cost of Living Adjustments” with this justification from the governor’s office:
“Many states are reducing pension liabilities by lowering or eliminating cost of living adjustments (COLA), or eliminating COLAs for current and future employees. For example, Colorado reduced its 2010 COLA from 3.5% to 0% with a rate of 2% starting in FY2011. Minnesota reduced COLAs from 2.5% to 1-2% depending on the fund, and South Dakota made a 1% reduction in 2010 with future years COLAs based on investment performance.”
Here is the COLA wording taken from the PERS Employee Handbook:
Cost-of-Living Adjustment — The Pension Adjustment Program provides a cost-of-living adjustment (COLA) to retirees and their survivors who receive a monthly retirement allowance from the PERS. The first adjustment is received by all retirees and eligible survivors in the 25th month after the member’s retirement. Subsequent cost-of-living adjustments are computed annually and are reflected in the February 1st check (which is payment for the month of January). The COLA is based on your initial retirement allowance; however, if you chose Option 1, the COLA is calculated using the Maximum Option amount.
The Division of Pensions and Benefits uses the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (CPI-W), U.S. City Average, All Items, 1982-84=100 in calculating the COLA. Your rate of increase is equal to 60 per cent of the percentage change between the average CPI for the calendar year in which you retired and the average CPI for the 12 month period ending August 31, immediately preceding the year when the adjustment is payable.
Retirees can find their current cost-of-living adjustment under the Current Earnings section of their most recent retirement benefit Statement of Allowances and Deductions (check or EFT stub).
EXAMPLE: To calculate the COLA due February 1, 2003. A member retired in 1983 with a monthly retirement allowance of $3,400. 00. The average CPI for the twelve months ending December 31, 1983 was 99. B. The average CPI for the twelve months ending August 31, 2002 was 174.8.
To calculate the change in the CPI, subtract 99. 8 from 174.8. (174.8- 99.8 = 75.0) To calculate the percentage change in the CPI between the retirement year, 1983, and the 12 months ending August 31, 2002, divide 75.0 by 99.8 which equals 75.150%.
The cost-of-living adjustment rate for February 1, 2003 equals 60% of 7 5. 150% or 45. 090%. (60% X 75.150% = 45.090%) Therefore the cost-of-living adjustment for this member is 45. 090% of $3,400.00 or $1,533.06 per month (45.090% X $3,400.00 = $1,533.06).
The total monthly benefit equals $4,933. 06.
Not a lot of wiggle room there. The COLA is defined and anyone retiring was told they would be getting it. There was even an increase effective this year.
Governor Christie will sign the pension reform bill tomorrow. If it withstands court challenge it will definitely solve the pension crisis in New Jersey but not for the stock reasons you will hear. Rather, it will legalise theft and when the formality of having the money run out approaches later this decade it will allow the state to disavow its obligation for ALL pension promises citing as precedent their actions tomorrow disavowing part of those promises.
* I’m not sure if it’s because whoever wrote the handbook wanted to pad the content of the smallest one or that judges wouldn’t be able to grasp the COLA concept without a concrete example or that only judges would be able to follow a concrete example.
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