Wednesday, March 14, 2012

COLA (Cost-of-Living Adjustment): Is It Guaranteed in Illinois?


“The post-retirement increase, commonly known as a COLA, became effective July 1, 1969. The COLA was a set 1.5 percent of the member’s original annuity. At the same time, active member contributions were increased 0.5 percent to help defray the cost of the COLA.  The following improvements were made to the program: January 1, 1972 – 2 percent COLA (with no increase in contributions); January 1, 1978 – 3 percent COLA (with no increase in contributions); and January 1, 1990 – post retirement increase, compounded (with no increase in contributions)” (Rich Frankenfeld, TRS Director of Outreach).


“Current law provides an annual 3 percent increase for SERS and TRS, compounded. For members of the General Assembly plan and judges, the annual post-retirement increase will be at full CPI” (National Conference of State Legislatures November 2010).

According to the National Conference of State Legislatures (January 2011), “In 2011, 10 states revised their provisions for automatic cost-of-living adjustments, as eight other states had done in 2010. An automatic COLA is one that is made annually, usually pinned to a measure of inflation like the Consumer Price Index. Its purpose is to reduce inflationary erosion of the purchasing power of retirement benefits.

“In all cases in 2011, as in 2010, state action reduced future commitments. State actions in 2011 affect current benefit recipients in three states, but [they] were designed to affect people who will retire in the future or, in six states, only people who will be hired in the future.”
As stated by Illinois Issues Statehouse Bureau (January 2012), “according to the National Conference of State Legislatures, 17 states have taken actions in the last two years that would reduce COLA benefits. Most states making such changes, including Illinois, have reduced COLAs for future employees. However, in 2010, Colorado, Minnesota and South Dakota all reduced the cost-of-living increases given to current retirees, and other states are taking notice… Since then, New Jersey and Rhode Island have both put a freeze on COLA benefits until their pension systems get on sound financial footing.
“Last summer [2011], judges in Colorado and Minnesota tossed out court challenges from retired state workers, allowing the COLA reductions to stand. The states said that the COLAs were not part of contractually-guaranteed benefits, while workers argued that reducing them would violate both state and federal protections for contracts. ‘The big legal question that has resulted in these court cases is to what extent are future COLAs … promised and protected benefits,’ said David Draine, senior researcher for Pew Center on the States…
“The rulings in Colorado and Minnesota do not apply to other states and judges elsewhere, including California and West Virginia [where they] have ruled that COLAs cannot be reduced. However, Keith Brainard [Research Director for the National Association of State Retirement Administrators] said the rulings do indicate that some judges are willing to take into consideration the dire situation that some pension systems are in and may allow lawmakers to use more discretion if they are ‘making a reasonable effort to share the burden equally – that is [they are] not taking it out on only one group.’ In the case of Denver, [for example], the money saved from COLA reductions is slated to go back into the pension system to help shore it up, instead of being spent in areas that lawmakers might consider more popular with voters.”
In Illinois, these questions and others are being discussed: Can legislators legally change the COLA for both current and retired teachers? Is there a contractual right to a teacher’s COLA based upon statutory language? Would the compounded TRS COLA be constitutionally protected because eliminating or reducing this COLA would diminish "vested" pension benefits for an active teacher and retiree?
Dave Urbanek, Public Information Officer for TRS, states that “it is an open question whether the COLA granted in Illinois law is protected by the Illinois Constitution, either by the pension protection clause or by provisions guaranteeing contracts. It is one of the few areas of the state pension code that has not been tested in court.” 

Cinda Klickna, President of the IEA, maintains that “there is some belief that a flat COLA tied to CPI may not be unconstitutional, but of course that hasn’t been tested. As for a change in a COLA, it might depend on whether there is a corresponding benefit enhancement.”

According to Rich Frankenfeld, TRS Director of Outreach, “the attorneys of the IEA, IFT and school management have said for years that pension benefits for current and retired teachers cannot be changed. For them, this includes the 3% post-retirement increase (what most members call the COLA). Last year, the chief legal counsel [Eric Madiar] to the Illinois Senate Democrats issued a comprehensive analysis of these issues, basically supporting their position.”

It appears that legislators will steamroll ahead with what is most self-serving, regardless of the effects that a COLA reduction will have on Illinois teachers and their families. What seems blatantly obvious is that a COLA reduction for teachers will not be made compulsory on the legislators who pass such a bill, nor will it affect the legislators’ other guaranteed and unimpeded benefits, pensions and their social security. In this regard, to reduce the teachers’ COLA, whether it is deemed legal or not, will unquestionably diminish the teachers’ “promised” benefits.

It will affect the retired teachers’ financial security in an uncertain future, and it will most likely be challenged in the courts if it occurs. Creating and passing any bill that diminishes “promised” benefits, such as the compounded TRS COLA that is already in place for current and retired teachers, is a breach of trust.  It’s discriminating. In fact, it's emblematic of a continued unjust forfeiture and a theft to one particular group of people in Illinois, and it’s wrong.

For an Update, Click Here: COLA: a Guarantee for Illinois Judges (What about Public Employees?) 


2 comments:

  1. Thank you for articulating so eloquently your thoughts and suggestions on the current problems with TRS. I feel betrayed by Ingram with his reversal of position on TRS solvency. Is his salary paid from TRS funds? How much of a cut is he willing to take? Do Illinois legislators have a state pension system? If so, are they also taking a cut? I look forward to your next posting.

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  2. Illinois legislators are making much more than their salaries and multiple pension payments for their futures. Legalized corruption is rampant. The Madigan Foundation, a perfectly legal foundation, has enormous funding and investments that grow it at enormous rates. Consulting law firms and other legal entities add to the fact that legislators make tons of money after a mere few years with salaries that do not reflect the wealth they actually garner.
    The system is rigged. The "public good" has become the "public plunder" these people are dedicated to as they claim "ideological differences" and "austerity for all" except themselves and their families.
    Notice that Egypt and other "spring" nations are not attempting to be like the United States. They want our economic help but not our public plunder legislative set-up.

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