“The purpose of a COLA is to offset, or reduce, the
effects of inflation on retirement income… Most state and local governments
provide a COLA for the purpose of offsetting or reducing the effects of inflation,
which erodes the value of retirement income... This depreciation can affect the
sufficiency of retirement benefits, particularly for those who have no means to
supplement their income due to disability or advanced age.
“Social
Security beneficiaries are provided an annual COLA to maintain recipients’ purchasing
power. Similarly, most state and local governments
provide an inflation adjustment to their retiree pension benefits. This is
particularly important for those public employees – including nearly half of
public school teachers and most public safety workers – who do not participate
in Social Security.
“Unlike
Social Security, however, state and local retirement systems typically pre‐fund
the cost of a COLA over the working life of an employee to be distributed
annually over the course of [a retiree’s] lifetime…
“[The] distinction between [compound and
simple] COLA types is whether the increase is applied in a simple or compound
manner. Under a simple COLA arrangement, each year’s benefit increase is
calculated based upon the employee’s original benefit at the time of his or her
retirement. Under a compound COLA arrangement the annual benefit increase is
calculated based upon the original benefit as well as any prior benefit
increases. Some COLAs are both, in that they may be 'simple' until the retiree
reaches a certain age or year retired, at which point COLA benefits are
calculated using a compound method…
“As
part of efforts to contain costs and to ensure the sustainability of public
pension plans, and in response to the current period of historically low
inflation, many states recently have made changes to COLA provisions by
adjusting one or more of the elements mentioned above…
“Since
2009, eleven states have changed COLAs affecting current retirees, five states
have addressed current employees’ benefits, and six states have changed the
COLA structure only for future employees. The legality of these modifications
in several states has been, or is, being challenged in court...”
Commentary:
As stated by John
Stevens, Legal Consultant for the “We Are One” Labor Coalition, “to take away
the Cost-of-Living Adjustment for retirees is not a free and fair choice. It is
a coercive choice under duress.” In
other words, duress (or coercion) is a vitiating factor. Legislators of the
State of Illinois are breaching a contract by forcing public employees to make
a choice to diminish their originally-vested guarantee. They are breaking an
enforceable promise, one that is bilateral and emphasizes an agreement between
the State of Illinois and its public employees as to their future rights and
benefits.
Regarding
the diminishment of the COLA, pension reform offers public employees no ethical and
lawful alternatives except to consent to the General Assembly’s demands by
choosing between two illicit choices; second, this is unlawful because of the
illegitimacy of the General Assembly’s advantageous attempt to renegotiate a
constitutionally-guaranteed contract; third, it is unlawful to induce undue
pressure upon public employees to make an unfair choice; fourth, this is an
unjust financial enhancement for the General Assembly because it is a breach of
contract for public employees to receive less than what the original vested
right and benefit guaranteed, and it is
also a blatant exploitation of influence to obtain an unwarranted advantage
(Illinois Pension Reform… Is Without Legal and Moral Justification).
For
more commentary about COLAs: http://teacherpoetmusicianglenbrown.blogspot.com/2012/03/cola-cost-of-living-adjustment-is-it.html
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