Wayne Clark: A follow-up letter to STRS Board re: COLA inequities

From July 2013 Through July 2021 the July - December Retiree Will Lose Approximately $8400 Compared to the January - June Retiree

From Wayne Clark

August 1, 2017

Dear STRS Board Members,

In June I sent all members an email with attachments that contained an explanation letter and four charts. The charts illustrated the unfair financial inequality that the July through December retirees are experiencing as a result of the use of the Fiscal Calendar instead of an Annual Calendar when implementing COLA suspensions and/or COLA percentage reductions. The charts also illustrated that the financial inequality the July - December retirees are experiencing is a result of the denial of the last 3% 2013 COLA and denial of the 2017 COLA. I must admit I was extremely disappointed that I didn't receive any response from Board members regarding the charts. 

Bob Buerkle and I have now developed a one page document that simplifies and illustrates this huge financial inequality between the Jan - June retirees and the July - Dec retirees. It is my hope that you look at the document and begin to have serious discussion on how quickly this huge financial inequality can be resolved so all retirees, no matter which month they retired in, are treated the same. The July and August retirees are now the first to experience the sickening feeling of having their COLA unfairly suspended. Hopefully, with a change in STRS policy, the retirees that have COLA anniversaries over the next four months won't have to experience the same sickening feeling. If the Board continues to ignore and refuses to have any discussion regarding the huge financial inequality that is taking place retirees will be forced to explore all legal options. 

I have copied the attachment and pasted it below in case you don't want to open the attachment. The copy and paste version may be a little jumbled compared to the attachment.

Respectfully,

Wayne Clark

STRS retiree                          

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