Board Sets Cost-of-Living Adjustment (COLA) at 0% for 2011
At the August 30 meeting, the PSRS/PEERS Board of Trustees voted to set the January 1, 2011 cost-of-living adjustment (COLA) at 0%. The COLA is based on the recommendation of the PSRS/PEERS actuary as reflected by the change in the Consumer Price Index for Urban Consumers (CPI) for the preceding fiscal year (July 1 – June 30). The CPI for the period July 1, 2009 to June 30, 2010 increased only slightly, at 1.1%.
Although this year’s CPI was slightly positive, the CPI for the period July 1, 2008 to June 30, 2009 was actually a negative 1.4%. Thus, even though retirees will not receive a COLA this year, the value of their benefit over the last two years has slightly improved when compared to the Consumer Price Index.
This was a very difficult decision for the Board. However, the PSRS/PEERS Board of Trustees is charged by law with making decisions that are in the best interest of the membership as a whole and which preserve the integrity and financial soundness of the Retirement Systems. Granting a 1.1% COLA would have added approximately $130 million to the liability of the systems, which would have to be paid for by the active members and school districts.
The Board of Trustees and staff at PSRS/PEERS strive to ensure that future generations of teachers and educational employees enjoy the same retirement security as our retirees do today. Our primary goal is to maintain the financial solvency, strength, and integrity of the Systems for our members and retirees. Given the current economic times when active members and school districts are required to increase their contributions to the system to help pay off unfunded liabilities, the Board felt it prudent to set the COLA at 0% for January 2011.
Legal Guidelines for Setting COLAs
Missouri law provides guidance for the PSRS/PEERS Board of Trustees when setting the annual COLA. The law outlines the Board’s options for setting COLAs based on the CPI.
Current law mandates that:
- COLAs cannot exceed 5% per year. If the CPI is 5% or more, the Board must award a 5% COLA.
- If the CPI is less than 5% the Board may determine the percentage of increase to be made, with these caveats:
- If the CPI is 2% or more, the COLA must be at least 2% but no more than 5%.
- If the CPI is between 0 and 2%, the Board may grant a COLA of 0% to 5%.
- If the CPI decreases from the previous fiscal year there can be no COLA.
- The total dollar amount of COLA increases received over a retiree’s lifetime cannot exceed 80% of the original monthly benefit amount (actual benefit amount considering the payment plan selected, PLSO, etc.).
How is the CPI determined?
The U.S. Department of Labor calculates the CPI used to determine the COLA. CPI calculations are based on averages from survey data collected from thousands of households around the nation. The CPI measures the national average the price paid for a variety of goods and services and reflects how much those costs have increased or decreased. Major groups and examples of goods and services measured include:
- Food and beverages
- Medical care
- Other goods and services (such as tobacco and smoking products, haircuts and other personal services, and funeral expenses)
This national average may be different than the inflation you experience, based on your personal goods and services purchased.
More information on the Consumer Price Index can be found on the Bureau of Labor Statistics’ website, http://www.bls.gov/cpi.