COLA (from the Lawsuit filed by the We Are One Coalition of Illinois on January 28, 2014)

“SERS, SURS AND TRS MEMBERS ARE ENTITLED EACH YEAR TO A 3% AUTOMATIC ANNUITY INCREASE UNDER CURRENT PENSION LAW

“In addition to the initial pension amount, the Pension Code currently provides that members of SERS, SURS and TRS are entitled each year to a 3% automatic annuity increase to their pension amount, compounded. The 3% increase is effective each January 1, and the new amount serves as the base for the subsequent year's automatic annuity increase. (See pre-amendment 40 ILCS 5/14-114; 40 ILCS 5/15-136(d); and 40 ILCS 5/16-133.1(a).)

“Accordingly, for example, if a pension system member's initial annuity is $33,000, the first automatic annuity increase will be $990 ($33,000 x .03), for a total annuity of $33,990 in the second year of retirement. Thereafter, the $33,990 would serve as the base annuity amount for calculating the next 3% automatic annuity increase (e.g., $33,990 x .03 = $1,017.90), and the member's annuity amount in the third year would be $35,007.90.

“A yearly automatic annuity increase is not a new concept. The Pension Code has provided a yearly automatic annuity increase to members of SERS, SURS and TRS since, at least, January 1, 1970 — before the 1970 Constitutional Convention that gave rise to the Pension Clause.

“Upon information and belief, concerned about the effect of inflation on the pension amounts members receive, in August 1978 the State increased the yearly automatic annuity increase to 3%, effective with the January 1, 1979 automatic annuity increase. Upon information and belief, at the time the Consumer Price Index for all Urban Consumers ("CPI-u") was higher (e.g., 1977 — 6.7%; 1978 — 9%; and 1979 — 13.3%) than the increase in the yearly automatic annuity to 3%.

“In August 1989, the State added the compound component to the automatic annuity increase. That is, effective January 1, 1990, a member's 3% automatic annuity increase would compound each year, as described in paragraph 78 of this Complaint. Upon information and belief, the State added the compound component in an effort to stave off some of inflation's impact diminishing the value of a member's pension and to create for members with lesser pension amounts at least some hedge against poverty that inflation may cause. Upon information and belief, in 1987, 1988, 1989, for example, the CPI-u was, respectively, 4.4%, 4.4% and 4.6% and from 1970-1989 the average CPI-11 was 6.265%.

“Moreover, the compounded automatic annuity increase is a benefit for which most members have paid. Starting in 1970, TRS and SURS members have contributed each year an additional .5% of their salaries — on top of their required base contributions from salary — to fund a portion of the automatic annuity increases to which they are entitled in retirement. (See 40 ILCS 5/16-152(a) (2); and 40 ILCS 5/15-157(b).)

“Now, however, those contributions are for naught. Through its enactment of Public Act 98-0599, the State is set to undermine the retirement security it constitutionally promised and for which Plaintiffs and the class they represent paid through work and salary contributions.

“PUBLIC ACT 98-0599 AMENDS THE PENSION CODE IN SEVERAL WAYS TO EFFECT AN UNCONSTITUTIONAL DIMINISHMENT AND IMPAIRMENT OF THE PENSION AMOUNT A MEMBER RECEIVES

“Public Act 98-0599 amends several components of the formula currently set forth in the Pension Code, as described above, concerning eligibility for a non-discounted annuity and the attendant pension amount a SERS, SURS and TRS member receives each year in retirement. Each change standing alone, let alone in concert, impairs and diminishes the pension amount SERS, SURS and TRS members otherwise would receive under the Pension Code had the General Assembly not enacted, or had the Governor not signed into law, Public Act 98-0599.

“PUBLIC ACT 98-0599 DIMINISHES AND IMPAIRS AUTOMATIC ANNUAL INCREASES

“First, Public Act 98-0599 diminishes and impairs the annual automatic annuity increase to which each SERS, SURS and TRS member is entitled, whether the member already is retired or hereafter retires. As indicated above, currently each SERS, SURS and TRS member is entitled to a 3% annual annuity increase, compounded.

“But starting with the annual annuity increase that will be made on January 1, 2015, the annual annuity increase for each SERS, SURS and TRS member will be the lesser of 3% of the member's (a) base annuity amount, (b) the number of years of the member's service at retirement multiplied by $1000 if the member employee does not receive Social Security, and (c) the number of years of the member's service at retirement multiplied by $800 if the member receives Social Security. (See, respectively, Public Act 98-0599's amendments to 40 ILCS 5/14-114(a-1); 40 ILCS 5/15-136(d-1); and 40 ILCS ⁵/₁6-133.1(a-1).) 

“Each year thereafter, beginning with automatic annuity adjustments granted on January 1, 2016, the $800 or $1000 multiplier will be indexed and increase by the CPI-u for the 12 months ending the September prior to the increase. For example, under the Pension Code prior to Public Act 98-0599, if a member has an initial pension amount of $33,000 after retiring before July 1, 2014 with 30 years’ service credit, her first automatic annual increase on January 1, 2015, would be $990 (e.g. $33,000 x .03).

“Under Public Act 99-0599, in contrast, her January 1, 2015 automatic annual increase would be $900 (e.g., 30 x $1000 x .03) if she is not covered by Social Security or $720 (e.g., 30 x $800 x .03) if she is covered by Social Security.

“Thereafter, the CPI-u is taken into consideration somewhat when calculating her subsequent automatic annuity increases. For example, if the CPI-u ending September 2015 for the prior 12 months equals 3%, the $1000 multiplier would be increased by $30 (e.g., $1000 x .03) to $1030 and the $800 multiplier would be increased by $24 (e.g., $800 x .03) to $824. In turn, her January 1, 2016 automatic annual increase would be $927 (e.g., 30 x $1030 x .03) if she is not covered by Social Security or $741.60 (e.g., 30 x $824 x .03) if she is covered by Social Security. Thus, her pension for 2016 would be $34,827 ($33,900 + $927) if she is not covered by Social Security or $34,461.60 ($33,720 + 741.60) if covered by Social Security.

“In stark contrast, in this example were her automatic annuity increase for 2016 calculated under law in effect prior to Public Act 98-0599, the member would receive an automatic annual increase of $1,019.70 for a pension in 2016 of $35,009.70. With each passing year, the gap between the automatic annuity increase the member would have received under the formula in place prior to Public Act 98-0599 and the automatic annuity increase that the member will receive under Public Act 98-0599 increases. Stated otherwise, the degree of diminishment and impairment caused by the change in the pension formula will increase with each passing year.

“A member with an annuity that is less than his or her years of service multiplied by the applicable $1000 or $800 multiplier will receive a 3% automatic annuity adjustment compounded each year until the annuity reaches the maximum annuity to which the 3% automatic annuity adjustment compounded applies. Thereafter, the member would be subject to the same impairing and diminishing formula for the automatic annuity increase that Public Act 98-0599 imposes immediately on every other member of the class.

“PUBLIC ACT 98-0599 DIMINISHES AND IMPAIRS PENSION BENEFITS BY REQUIRING MEMBERS TO MISS AUTOMATIC ANNUITY INCREASES

“Public Act 98-0599 also diminishes and impairs pension benefits by requiring pension system members who retire on or after July 1, 2014 to miss certain automatic annuity increase adjustments. Depending on a member's age as of June 1, 2014, the member will have at least one and up to five annual adjustments skipped, as follows:

“Age 50 or over, the second automatic annuity increase is skipped; age 47 to under age 50, the second, fourth and sixth automatic annuity increases are skipped; age 44 to under age 47, the second, fourth, sixth and eighth automatic annuity increases are skipped; and age 43 and under, the second, fourth, sixth, eighth and tenth automatic annuity increases are skipped. (See Public Act 98-0599's amendments to 40 ILCS 5/14-114(a-2); 40 ILCS 5/15-136(d-2); and 40 ILCS 5/16-133.1(a-2).)

“As with the change in the formula used to calculate the automatic annual increase itself, the degree of diminishment and impairment to a pension system member's benefits caused by skipping one or more automatic annual increases will increase with each passing year…”

From http://www.weareoneillinois.org/WeAreOneIllinois_Complaint.pdf

For a complete analysis: COLA: a Guarantee for Illinois Judges (What about Public Employees?)