Save Retired Teacher 1.5% COLA

SB 1, Senate Committee Substitute will be on the Senate State and Local Government agenda tomorrow, March 7 at noon.  Please call your legislator at 1-800-372-7181 and ask them to protect retired teachers 1.5% Cost of Living Adjustment.

The following information is from Flick Fornia with Pension Trustee Advisors, Inc. regarding the impact of SB 1 SCS on the COLA Reduction for Retired Teachers.

COLA Reduction for Retired Teachers

TRS currently provides a 1.5% cost of living adjustment (COLA) each year. This is prefunded by employees and employers as part of the Normal Cost. The proposed legislation reduces this by half for twelve years for all current members. Over a full lifetime, this equates to an approximately 4% reduction in benefit value, or about $65,000 for a typical teacher in absolute dollars. Teachers at or near retirement will not have time to make up for this loss. The reduction in COLA is particularly problematic for Kentucky teachers who do not have access to Social Security, which is protected from inflation.

Pensions which are adequate at retirement can become inadequate years later once the effects of inflation are considered. TRS currently increases benefits for retirees by 1.5% per year. This helps defend somewhat against the impact of inflation, which is projected to be 3.0% per year in the TRS actuarial valuations. The SB1 SCS proposal is to reduce TRS cost of living adjustments (COLAs) to 1.0% until the plan is funded at the 90% level. Other analysis has estimated that this would be in effect for the next twenty years. If this is the case, then a benefit which is $3,000 today would be worth only about $1,987 in 2038. This is a 34% reduction in purchasing power over 20 years. Even under the current TRS COLA approach, benefits would lose 27% of their purchasing power over twelve years. The table below shows the impact of inflation under various COLA scenarios, based on an average TRS benefit of $3,000 per month and assuming age 60 in 2018.

Under current TRS provisions, benefits lose 1.5% per year in real terms

This would increase under SB1PSS proposal

SB 1, Senate Committee Substitute will be on the Senate State and Local Government agenda tomorrow, March 7 at noon.  Please call your legislator at 1-800-372-7181 and ask them to protect retired teachers 1.5% Cost of Living Adjustment.

The following information is from Flick Fornia with Pension Trustee Advisors, Inc. regarding the impact of SB 1 SCS on the COLA Reduction for Retired Teachers.

COLA Reduction for Retired Teachers

TRS currently provides a 1.5% cost of living adjustment (COLA) each year. This is prefunded by employees and employers as part of the Normal Cost. The proposed legislation reduces this by half for twelve years for all current members. Over a full lifetime, this equates to an approximately 4% reduction in benefit value, or about $65,000 for a typical teacher in absolute dollars. Teachers at or near retirement will not have time to make up for this loss. The reduction in COLA is particularly problematic for Kentucky teachers who do not have access to Social Security, which is protected from inflation.

Pensions which are adequate at retirement can become inadequate years later once the effects of inflation are considered. TRS currently increases benefits for retirees by 1.5% per year. This helps defend somewhat against the impact of inflation, which is projected to be 3.0% per year in the TRS actuarial valuations. The SB1 SCS proposal is to reduce TRS cost of living adjustments (COLAs) to 1.0% until the plan is funded at the 90% level. Other analysis has estimated that this would be in effect for the next twenty years. If this is the case, then a benefit which is $3,000 today would be worth only about $1,987 in 2038. This is a 34% reduction in purchasing power over 20 years. Even under the current TRS COLA approach, benefits would lose 27% of their purchasing power over twelve years. The table below shows the impact of inflation under various COLA scenarios, based on an average TRS benefit of $3,000 per month and assuming age 60 in 2018.

Under current TRS provisions, benefits lose 1.5% per year in real terms

This would increase under SB1 SCS proposal