Bob Buerkle breaks through the smoke-and-mirrors in his COLA speech to the STRS Board
Bob Buerkle to the STRS Board May 17, 2018
Breaking Down the “Cost -of-Living Adjustment” or COLA
During the 1970s, inflation was high. As a result, compensation-related contract benefits used COLAs to protect against inflation.
The Bureau of Labor Statistics (BLS) determines CPI-W, which is used by the Social Security Administration (SSA) to compute COLAs. The COLA formula is determined by applying the percentage increase in the CPI-W from the third quarter of one year to the third quarter of the following year.
Congress ratified a COLA provision to offer automatic yearly COLAs based on the annual increase in CPI-W that went into effect in 1975. Prior to 1975, social security benefits were increased when Congress approved special legislation. In 1975, COLAs were based on the increase in the CPI-W from the second quarter of 1974 to the first quarter of 1975. From 1976 to 1983, COLAs were based on the increases in the CPI-W from the first quarter of the previous year to the first quarter of the current year. Since 1983, COLAs are dependent on the CPI-W from the third quarter of the previous year to the third quarter of the current year.
Inflation levels ranged from 5.7 to 11.3% in the 1970s. In 197555, the COLA increase was 8%, and the inflation rate was 9.1%. In 1980, COLA reached the highest level in history at 14.3% when the inflation rate was 13.5%. In recent years lower inflation rates have prompted small COLA increases averaging 2 to 3% per year and 3 years with no COLA.
**STRS will not pay any future retiree a COLA for their first five years in retirement. What this really means is that the average retiree will lose a minimum of 155 COLA values times $1500 for a total of $232,500 (the actual lost value over an average retiree’s life expectancy). See page 27 of STRS Brochure “Service Retirement and Plans of Payment” on Cost of Living Adjustment rules.
Of the Five Ohio Retirement Systems;
1. Only STRS increased employee contributions by 40% (from 10 to 14%).
2. Only STRS also increased the minimum career requirement for a full pension by five more years (from 30 to 35 years).
3. Only STRS devised a devious plan to permanently eliminate their obligation to pay any pension to future retirees, by delaying their first pension payment, for five to nine years of time! (STRS began this phase-in beginning with 2015 and will continue through 2026. The loss imposed by this rule alone will cost the average teacher retiring after 2026 between $350-$630,000 in 2018 dollar values. STRS will never have to pay this because they are delaying the teachers’ ability to retire by 5 to 9 years.)
4. Of the Five Ohio Retirement Systems, STRS is only behind OPERS in pension system funding strength at 75% vs. 80%. (Twice the KY strength.)
5. Why does STRS use the lowest Earnings Assumption Rate of all 5 Pension Plans? (To justify their actions of eliminating our COLA benefit. It makes it look like STRS is short the necessary funds to pay for COLAs.)
6. Only STRS convinced Legislators to give them the authority to eliminate the STRS Retiree COLA increases for as many years as they see fit (currently 8 years lost through 2022 which will cost the average retiree another $500,000 in lost pension income even if a 2% COLA is restored after 2022).
Conclusion: Ohio Teachers and Retirees are having financial sacrifices imposed upon them that are 5 to 10 times more costly than the states of Kentucky, West Virginia, Oklahoma and Arizona. However, Ohio Teachers and Retirees have yet to mount a mass protest, mainly because it was done in such a convoluted way that is difficult to fully understand since the most devastating pension losses will come nearer to the end of your life.
Breaking Down the “Cost -of-Living Adjustment” or COLA
During the 1970s, inflation was high. As a result, compensation-related contract benefits used COLAs to protect against inflation.
The Bureau of Labor Statistics (BLS) determines CPI-W, which is used by the Social Security Administration (SSA) to compute COLAs. The COLA formula is determined by applying the percentage increase in the CPI-W from the third quarter of one year to the third quarter of the following year.
Congress ratified a COLA provision to offer automatic yearly COLAs based on the annual increase in CPI-W that went into effect in 1975. Prior to 1975, social security benefits were increased when Congress approved special legislation. In 1975, COLAs were based on the increase in the CPI-W from the second quarter of 1974 to the first quarter of 1975. From 1976 to 1983, COLAs were based on the increases in the CPI-W from the first quarter of the previous year to the first quarter of the current year. Since 1983, COLAs are dependent on the CPI-W from the third quarter of the previous year to the third quarter of the current year.
Inflation levels ranged from 5.7 to 11.3% in the 1970s. In 197555, the COLA increase was 8%, and the inflation rate was 9.1%. In 1980, COLA reached the highest level in history at 14.3% when the inflation rate was 13.5%. In recent years lower inflation rates have prompted small COLA increases averaging 2 to 3% per year and 3 years with no COLA.
**STRS will not pay any future retiree a COLA for their first five years in retirement. What this really means is that the average retiree will lose a minimum of 155 COLA values times $1500 for a total of $232,500 (the actual lost value over an average retiree’s life expectancy). See page 27 of STRS Brochure “Service Retirement and Plans of Payment” on Cost of Living Adjustment rules.
Of the Five Ohio Retirement Systems;
1. Only STRS increased employee contributions by 40% (from 10 to 14%).
2. Only STRS also increased the minimum career requirement for a full pension by five more years (from 30 to 35 years).
3. Only STRS devised a devious plan to permanently eliminate their obligation to pay any pension to future retirees, by delaying their first pension payment, for five to nine years of time! (STRS began this phase-in beginning with 2015 and will continue through 2026. The loss imposed by this rule alone will cost the average teacher retiring after 2026 between $350-$630,000 in 2018 dollar values. STRS will never have to pay this because they are delaying the teachers’ ability to retire by 5 to 9 years.)
4. Of the Five Ohio Retirement Systems, STRS is only behind OPERS in pension system funding strength at 75% vs. 80%. (Twice the KY strength.)
5. Why does STRS use the lowest Earnings Assumption Rate of all 5 Pension Plans? (To justify their actions of eliminating our COLA benefit. It makes it look like STRS is short the necessary funds to pay for COLAs.)
6. Only STRS convinced Legislators to give them the authority to eliminate the STRS Retiree COLA increases for as many years as they see fit (currently 8 years lost through 2022 which will cost the average retiree another $500,000 in lost pension income even if a 2% COLA is restored after 2022).
Conclusion: Ohio Teachers and Retirees are having financial sacrifices imposed upon them that are 5 to 10 times more costly than the states of Kentucky, West Virginia, Oklahoma and Arizona. However, Ohio Teachers and Retirees have yet to mount a mass protest, mainly because it was done in such a convoluted way that is difficult to fully understand since the most devastating pension losses will come nearer to the end of your life.
posted by Kathie Bracy at 6:10 PM
<< Home