What about “Tier 0” retirees?

Legislative Report by Ross Buie

In the almost obsessive war on state employees, retirees, and their retirement benefits, the governor and many legislators blame unsustainable, excessive, retirement benefits for the unfunded liability of the pension systems by bashing the only group that faithfully paid their share of retirement contributions. At the same time, they virtually ignore or excuse the administrations and legislatures that underfunded the retirement systems, using those monies to fund favored programs or projects.

The favorite target of the governor, and many legislators, is the annual 3% increase in pension benefits, commonly called the COLA. Their argument is that this 3% actually exceeds the current annual consumer price index, or CPI. Strange, but we never heard that argument in the years of 1979 through 1981, when the CPI increased by 35.1%, while retiree benefits increased by little more than 9%. In other words, the purchasing power of the average retiree was reduced by about 26%.

And that brings up the plight of those that we will call “Tier 0” retirees, those who retired before January of 1998 under a retirement system that was rated 49th in the nation for retirement benefits. In 1998, the retirement formula was changed, giving someone who retired after that date with 20 years of service about 50% more in retirement benefits than the pre-1998 retiree. Unfortunately, no provision was ever made to adjust the benefits of the pre-1998 retiree, or the “Tier 0” retiree.

So, even today, there are still many retirees out there who retired under the old formula, retirees who saw their nation's worst pension system benefits reduced by 26% in just three years. For the “Tier 0” retiree, a reduction in COLA would be a double whammy, a lesser annual increase on their already lesser benefits. We bring this up, not in the hope of improving the benefits of these “Tier 0” retirees, but to remind legislators that there are many less-than-obvious problems associated with addressing the unfunded pension liability problem. A quick fix, knee jerk, one-size-fits-all solution could very well result in real hardship for many retirees.

NOTE: Legislative Reports are from contributors and do not necessarily reflect the views or the policies of the Retired State Employees Association