Monday, August 28, 2017

Bob Buerkle and Wayne Clark Spell Out How the STRS Board Is Financially Punishing the July-December Retirees with Unequal Treatment

STRS Board Uses Fiscal Year Calendar to Deny July - December Retirees Several Hundred Million Dollars in COLA Benefits
The original plan to deny millions of dollars to the July through December retirees was most likely conceived prior to the STRS Board's 2013 COLA suspension and percentage adjustment.  At some point when the plan to suspend and reduce the COLA percentage was being discussed someone at STRS noticed that by starting COLA suspensions and/or COLA percentage reduction by using the Fiscal Calendar (July 1 - June 30) instead of an Annual Calendar (January 1- December 31) would save STRS millions of dollars by denying millions of dollars to the July through December retirees.  
The deception was based on convincing the July through December retirees back in 2013 that they would not be losing any money compared to the January through June retirees.  It started by STRS informing the July through December retirees that they would be the first retirees to have their COLA suspended and they would be the first to get the new reduced 2% COLA the following year when the January through June retirees would have to wait a year before getting the reinstated 2% COLA.  The majority of the July through December retirees did not see the inequity in this method and they were convinced that this was fair and all retirees were getting their COLA suspended for one year.  
With no major pushback from the July through December retirees for using the Fiscal Calendar method to implement suspensions and/or to reduce COLA percentages the STRS Board saw another opportunity to save additional millions of dollars at the expense of the July through December retirees.  By informing all retirees that there would be a multiyear COLA suspension the focus would be on all retirees losing several years of COLA and there would be little or no pushback on how the Fiscal Year method was again going to deny several hundred millions of additional dollars to the July through December retirees. 
In 2013 as a result of the deceptive use of the Fiscal Calendar for COLA suspensions and/or COLA percentage reductions by the STRS Board retirees that retired in July - December 2012 with a $40,000 pension have already lost approximately $2400 compared to retirees that retired in January - June 2012 with the same $40,000 pension.   Because the January - June retirees did receive a 2017 COLA while the July - December retirees were denied the 2017 COLA, and the fact that the new COLA suspension will last a minimum of five years, the July - December retirees will lose an additional $6000 compared to the January - June retirees.  As a result of the STRS Board's decision in 2013 to use the Fiscal Calendar to implement COLA suspensions and/or COLA percentage reductions the July - December retirees will lose an additional $8400 ($2400+$6000) when compared to the January - June retirees. 
It is important to note that all July through December retirees that retired prior to 2013 are experiencing these huge additional financial losses that the January through June retirees aren't experiencing. This inequity is a direct result of the STRS Board using the Fiscal Calendar to implement COLA suspensions and/or COLA percentage reductions instead of using the Annual Calendar when implementing changes.  If $8400 is the average loss for each July through December retiree and if there are approximately 80,000 July through December retirees the additional loss in pension funds compared to the January through June retirees is a staggering $672 million. (**see info/chart)

                  ** STRS Retirees Suffering Huge Losses, Some More Than Others
The examples below reflect retirees that retired in 2012 with a $40,000 pension and a $1200 annual COLA.  The first two June and July columns (A and B) show the results of what the STRS retirees would have been granted without COLA suspensions and/or COLA percentage reductions.  Columns A and B show that the June and July retirees would have received the same pension amounts through 2021.  Until July 1st 2013 the annual COLA was 3% and a COLA was paid every year to all retirees since 1971. 
The third and fourth columns (C and D) show the actual reduced retirement payments due to the STRS changes, reductions and finally the total elimination of the COLA at least through 07/01/21.  This results in a minimum loss of $28,800 on an original annual pension of $40,000 for the June retiree.  So you are basically losing over 70% of a year's pension over the time covered in this chart if you are a January-June retiree.
The other travesty is the disparate treatment of the July through December retirees. As the result of STRS's use of the Fiscal Calendar in lieu of an Annual Calendar for COLA suspensions and/or percentage reductions during the 4 year period between 2013 and 2016 July-Dec retirees were behind in purchasing power by over 1% on average.  When the STRS Board terminated the COLA on 07/01/2017 this purchasing power loss grew to 3% or $1200 per year since the Jan-June retirees received another 2% COLA on their anniversaries that the July-Dec retirees did not get.  Therefore, Jan-June retirees have a $1200 pension benefit advantage that is additive every year going forward starting July 1, 2017 through July 1 2021.  This advantage is $1200 x 5 years, at minimum, before the next quinquennial review.  That's $6000 more in pension payments over that period for about half of all retirees while the other half receive $0.   Therefore, when you add the losses since July 1, 2013 through July 1, 2016 which is $2400 and the $6000 they will lose over the next five years the July-Dec retirees will end up at least $8400 behind the Jan-June retirees in total pension payments over the period described, a loss of 93% of their original yearly pension.  If the suspension of the COLA continues beyond 2021 the $8400 difference will continue to grow by $1200 for each additional year.
Approximately half of the 160,000 STRS retirees have retirement anniversaries between January and June.  Therefore, 80,000 X $8400 = $672,000,000 will be paid to the Jan - June retirees at the pension asset expense of the 80,000 July-Dec retirees.
This is why the SERS System is asking for a January, 2018 COLA cessation date.  It eliminates the inequity that the STRS plan has promoted.
Click image to enlarge

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