The week before Christmas Bigger Pie Forum looked at PERS’ cost of living adjustment (COLA), commonly known as the 13th check. PERS recipients get a 3% raise every year as a COLA. Many retirees take it in a lump sum at the end of the year–the 13th check.

PERS’ COLA exceeds commonly recognized inflation indexes. The average gain of the consumer price index since the legislature raised COLA to 3% was 2.18%. According to BPF:

Just reducing the size of the COLA payout by a third over the past 18 years would’ve saved more $2.2 billion, which would’ve helped address the plan’s $16.6 billion in unfunded liabilities….

The easiest way to stem the bleeding on PERS’ bottom line is to change the way the COLA is computed. Many states index the COLAs for their pension funds on the CPI. Others base the annual COLA percentage on the plan’s funding ratio, which is the share of future obligations covered by current assets. Some do a combination.

Legislators need to study how other states with healthier pension funds are holding down the costs on the COLA for PERS. Doing so would be an easy fix and allow retirees to continue to boost the buying power of their benefits while ensuring the plan’s future.

My Take:

Good point. Defenders of the 3% COLA need to understand that it is blowing a hole in the system. The longer the legislature waits to fill the hole, the harder it will be.

Taxpayers for sure–and likely retirees–will suffer a lot more pain because PERS and the legislature have not addressed the problem sooner.

We are now going on year nine since the Governor’s PERS Study Commission’s report. PERS and state leadership continue to ignore or downplay the magnitude of the problem.

  • Macy Hanson

    Philip, I appreciate the PERS coverage, although I fear that it is falling on deaf ears (I would say not my problem, but it will be all taxpayers’ problem down the road…). However, I am dying to hear your take on the SEC Receiver’s Complaint against Butler Snow and Baker Donelson. I know that I am not alone. I know that you used to work at Baker, so it might be touchy, but do you plan on writing about it? As an attorney who also brings legal malpractice cases, I am interested in your thoughts on this.

    Happy New Year from a loyal reader.

  • D. Thomas

    I think the defenders of the COLA look at the fact that many worked their entire lives based on a Contractual agreement that was very public. Something must be done about PERS, but the defenders of the COLA may look at this differently. Please remember when it comes to PERS, most of the retirees , and future retirees, are also the taxpayers. Perhaps the formula needs to change for folks coming into the system. There is no doubt that money could have been saved but many have to realize that to many retirees, a promise, or your word, meant something. I realize today the truth, someone’s word, or a handshake mean very little but it still means something from their perspective. Their defense of the COLA comes from seeing the issue through that window as well. Its going to be a tough one to navigate and for legislators who depend on votes, its an issue that is. unfortunately, always ripe for kicking down the road.