Adjusting the PERS Cost Of Living Allowance (COLA) for Tier 1 and 2 members is being proposed in one form or another by the Governor and Democratic and Republican legislators. If passed, what would it mean for the next two-year budget?
If passed, the COLA reduction would limit the 2 percent annual COLA to the first $24,000 of annual retirement benefits. This one PERS reform would reduce the current $14 billion PERS unfunded liability by $4.3 billion. Such a reduction in the unfunded liability would enable the employers’ rates to be lowered by 4.4 percent for 2011-13. Lowering the PERS rates by 4.4 percent would reduce employer payments by $810 million. Reducing PERS payments by $810 million could enable that $810 million to be spent on classrooms and programs by every school district and government agency. To realize the $810 million COLA reduction the legislature would instruct the PERS Board to lower the PERS rates for 2013-15 by 4.4 percent. The new, lower PERS rate would remain in effect for 2013-15 regardless of the outcome of a legal challenge to the Supreme Court.
In other words, the PERS COLA reform would lower the assumed PERS unfunded debt, which would result in a lowering of the payments due for the next two years. If such a PERS reform were to be invalidated, the amount of the PERS reform that was invalidated would be added back to the PERS debt and the amortization payments would be adjusted accordingly beginning in the 2015-17 biennium.