Tag: COLAs

Ohio State Teachers can’t invest its way to permanent COLAs, former chief actuary says

Mary Pat Campbell

Link: https://www.pionline.com/pension-funds/ohio-state-teachers-retirement-system-cannot-invest-its-way-permanent-cola-former

Excerpt:

The Ohio State Teachers’ Retirement System cannot invest its way to a permanent COLA, Brian Grinnell, former chief actuary of the $97.3 billion pension fund, told Pensions & Investments.

Grinnell left the pension fund in May after more than 10 years as its chief actuary. In a Sept. 27 interview, he said his responsibilities were primarily to help STRS staff and the board understand the risks the pension fund has faced and help develop a forward-looking plan to make decisions with long-term outcomes in mind.

In his interview, he said, “I was not comfortable with the direction the plan was headed, and I didn’t feel like my continued participation would be positive.”

….

The pension reform law, SB342, was one of five laws that addressed funding issues at all five of Ohio’s state retirement systems and was drafted as a result of severe stock market declines that came from the Great Recession in 2008 and 2009. Among all the state systems, STRS was the worst off in 2012 with a funding ratio of 57.6% as of June 30 of that year. Additionally, the amortization period for the retirement system’s unfunded pension liabilities under the STRS defined benefit plan had become infinite — meaning that it would never become fully funded.

Grinnell said STRS has had to contend with the challenge of being an extremely mature pension fund: Essentially, there is more money being sent out to retirees receiving benefits now relative to the future contributions the pension fund can expect from current and future teachers.

“Here’s where STRS is a little bit of an unusual situation because it is a fixed-rate plan,” Grinnell said, “so both the benefits and the contributions are essentially fixed by statute. So most plans, if they have a bad year in terms of investment performance, the contribution rate goes up the following year to fill that hole. That doesn’t happen at STRS.”

Grinnell said when a pension fund is both a mature plan and has that fixed-rate contribution and fixed benefits, it’s very difficult to recover from any kinds of market downturns. He noted that all five of Ohio’s state retirement systems have that fixed-rate structure.

“Most other public pensions do not have that kind of structure,” he said, “and I think that tends to work all right for an immature plan, a plan that’s growing and not paying out a lot of benefits relative to the contributions.”

Author(s): Rob Kozlowski 

Publication Date: 2 October 2024

Publication Site: Pensions & Investments

Many Pennsylvania state retirees say they can’t afford inflation on their stagnant pensions

Mary Pat Campbell

Link: https://www.spotlightpa.org/news/2023/07/pennsylvania-pension-public-school-state-worker-sers-psers-inflation-retirement/

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Excerpt:

Enrollees in Pennsylvania’s two public sector pension funds — the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) — haven’t seen a cost of living adjustment, or COLA, since 2004. Nearly 40 other states grant some sort of COLA to retirees.

Particularly hard hit by this lack of a COLA are the almost 69,000 former public school teachers, state government workers, and other public sector employees who retired before 2001, like McVay. On average, these retirees are in their early 80s.

They retired before the legislature increased pension benefits by 25%. The average pension for a SERS enrollee who retired before 2001 is under $15,000 annually, according to the system. That number for a 2022 retiree is more than $30,000, thanks to the increase as well as a rise in average salaries for workers.

There’s a similar gap for PSERS enrollees. A person who worked for 30 years and ended with a $30,000 salary would have a pension of $18,000 if they retired pre-2001, according to Chris Lilienthal, a spokesperson for the Pennsylvania State Education Association. Under the same circumstances, a person who retired post-2001 would have a pension of $22,500.

Author(s): DaniRae Renno

Publication Date: 27 July 2023

Publication Site: Spotlight PA

Adverse Effects of Automatic Cost‐​of‐​Living Adjustments to Entitlement and Other Payments

Mary Pat Campbell

Link: https://www.cato.org/policy-analysis/adverse-effects-automatic-cost-living-adjustments-entitlement-other-payments

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Excerpt:

COLAs for Social Security’s OASDI have had an additional significant fiscal effect. Until recently, the payroll taxes paid for Social Security each year have usually exceeded the cost of benefits paid in that year. This balance was transferred to the general fund of the U.S. Treasury, which in turn issued special Treasury bonds to the Social Security Trust Fund to be redeemed later when taxes collected were less than the benefits paid. The fund balance reached $2.9 trillion at the end of 2020. Then in 2021, the Social Security Trust Fund had to redeem $56.3 billion of those bonds to pay OASDI benefits. Social Security actuaries have calculated that increasingly larger withdrawals will continue until the Trust Fund is fully depleted in early 2035.36 Under current law, once the Trust Fund balance is fully depleted, payments to beneficiaries must be reduced to the level supported by current Social Security taxes.

If Social Security COLAs had been calculated using the combination of C‑CPI‑U and PCEPI, then the Trust Fund balance in 2020 would have been $3.5 trillion, and full depletion of the Trust Fund would have been delayed two more years to 2037. If the price indexes had also been improved to minimize new‐​item bias (the best‐​practices index), the balance in 2020 would have been $4.4 trillion, and full depletion of the fund would have been delayed until 2039 (see Figure 1).

Author(s): John F. Early

Publication Date: 22 Jun 2023

Publication Site: Cato

State Pensioners Can Learn Lots From Rhode Island And Ohio Teachers

Mary Pat Campbell

Link: https://pensionwarriorsdwardsiedle.substack.com/p/state-pensioners-can-learn-lots-from

Excerpt:

Finally, and most important, this month there is an election for one active, or contributing member seat on the STRS board—the outcome of which will be determined in early May. If the reform coalition candidate wins this seat, it’s likely control of the board will shift. Then the concerns of the state auditor and reform-minded members will be addressed regarding the need to restore transparency, lower investment fees paid to Wall Street, improve investment performance and move toward restoring benefits previously promised. If so, STRS Ohio’s participant-driven reforms may serve as a template for all of the nation’s public pensions. (On the other hand, if our request for public records is granted by the Ohio Supreme Court later this year—and court-ordered transparency ensues—there may be little need for board action because any mismanagement or wrongdoing will have been exposed to the public.)

But here’s the big picture: Since all public pensions in America have moved like a herd, pouring over $1 trillion into many of the same high-cost, high-risk secretive alternative investments, if any single state pension—such as Rhode Island, or Ohio STRS—restores full transparency and releases alternative investment information to the public revealing widespread industry abuses and violations of law, all participants in public pensions which have also invested in these funds, as well as taxpayers, will benefit. One obscure pension fund board vote in Ohio could ultimately force the transparency and accountability Wall Street has successfully resisted for decades.

Author(s): Edward Siedle

Publication Date: 11 April 2023

Publication Site: Pension Warriors on substack

Adjustments in City’s pension plan may take six or more years

Mary Pat Campbell

Link: https://richmondfreepress.com/news/2022/nov/10/adjustments-citys-pension-plan-may-take-six-or-mor/

Excerpt:

City Hall’s 4,200 retirees likely may wait years before seeing another cost-of-living adjustment in their pensions.

In a report to City Council on Monday, Leo Griffin, director of the Richmond Retirement System, projected that 2029 may be the earliest that cost-of-living adjustments are considered for enrollees in the defined benefit pension plan. The defined benefit plan provides a guaranteed pension that depends on the salary earned.

Mr. Griffin’s report suggested the city would be better off waiting until 2033 to consider pension improvements. That is when the system is projected to be fully funded and the city’s yearly

contribution for the pension plan is projected to plummet 81 percent from around $55 million a year to $10 million a year.

Mr. Griffin’s projections assume that the system achieves an average annual 7 percent return on investments.

If that level of return is received, his report indicates that the system would cross the 80 percent threshold of funding in six years – the funding threshold the retirement system has set before any cost-of-living adjustment could be considered.

Author(s): Jeremy M. Lazarus

Publication Date: 10 Nov 2022

Publication Site: Richmond Free Press

Social Security Politics

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/social-security-politics#details

Graphic:

Excerpt:

2022 OASDI Trustees Report, plus spreadsheets, etc. https://www.ssa.gov/OACT/TR/2022/

I am graphing the net change in the OASI (that’s the old age benefit part) Trust Fund, year-over-year.

I think you can easily see all those glorious years the Boomer payroll taxes were being stuffed into the Trust Fund… but really flowing right out into current spending for other goodies.

And you can see when that reversed and is now negative, and will continue to be negative until the Trust Fund is exhausted, in the early 2030s.

Author(s): Mary Pat Campbell

Publication Date: 7 Nov 2022

Publication Site: STUMP at substack

Social Security Needs Saving Again

Mary Pat Campbell

Link: https://www.wsj.com/articles/social-security-needs-saving-again-retirement-planning-wages-earnings-benefits-eligible-savings-11654631767?mod=opinion_lead_pos5

Excerpt:

— Raise the full retirement age further. Starting in 2028, it would go up by one month every half-year until it reaches 68 1/2 in nine years. That means that in 101 years (1935-2036) the full retirement age would have risen 3 1/2 years — far less than the increase in average life span over the same period.

— Raise the early eligibility age. Since the 1960s, all workers have had the option of retiring at 62 with benefits reduced by around 25%. Most retirees now claim Social Security at 62, and the rising full retirement age strengthens the incentive to do so. Once it’s at 67, holding out for higher payments will mean giving up five years’ worth of benefits — a three-year gap will have widened to five.

If my first reform were enacted, the gap would grow further, to an irresistible 6 1/2 years. So Congress should return to the three-year gap by raising the early eligibility age to 65 1/2 as soon as possible.

— Change the way benefits are calculated for new recipients. At a 1983 White House Rose Garden ceremony, I sat next to a Senate member of the Social Security Reform Commission. I told him, “You can fix Social Security by not indexing the bend points for five years.” His response: “What the hell are bend points?”

Bend points determine how much your initial Social Security check will be. First they take the 35 years of your highest income. Thirty-five years ago, you were a junior employee and the dollar didn’t go as far. So each year’s wages are adjusted for inflation to compute an average monthly wage in today’s dollars.

Using the present rules, assume you’re retiring in 2022 and your average inflation-adjusted monthly wage is $6,572. Your first check would be $2,628.96 — 90% of the first $1,024 (or $921.60), plus 32% from $1,024 to $6,172 (or 1,647.36), plus 15% in excess of $6,172 (or $60).

The bend points are $1,024 and $6,172. They were $230 and $1,388 in 1982, when I wrote my constituent newsletter. The growth in benefits could be constrained by indexing the bend points every other year rather than annually for six to 10 years. In addition, the initial benefit should be based on 38 years of wages rather than 35, since Americans not only live longer but work longer, and the inflation-adjusted average wage should be discounted by 5%.

— Slow the growth of benefits for new and existing beneficiaries alike by changing the basis on which they’re indexed for inflation. All indexing of Social Security now uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. Economists agree that the Chained CPI is the most accurate inflation index available. Between 2000 and 2020, the Chained CPI was around 0.3 percentage point lower each year than the CPI-W. The government uses Chained CPI to index income-tax brackets and the higher CPI-W to calculate government outlays, including Social Security cost-of-living adjustments — which leads both taxes and spending to rise more quickly.

— Withhold some Social Security COLAs from higher-income retirees. Those who report income of more than $60,000 (a threshold that itself would rise with inflation) from sources other than Social Security could be denied the COLA every other year for up to six years.

— Give the COLA not annually but every 14 or 15 months using the 12 months of lowest inflation.

— Tax Social Security income for higher-bracket taxpayers, and give them the option to forgo all or part of their monthly payment. The forgone amount could be deducted as a charitable contribution. In high-income-tax states, forgoing Social Security payments would incur little or no cost. Skeptics may be surprised by how many Americans will forgo a part of their monthly checks to assure the system’s solvency for their grandchildren. The election to forgo would be reversible annually.

— Raise the payroll tax by 0.1% of wages every other year — half from withholding, half for the employer’s contribution — for 20 years, a total tax increase of 1%.

Author(s): Rudy Boschwitz

Publication Date: 7 June 2022

Publication Site: WSJ

What Social Security Should Really Be Paying to Survive in This Economy

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2022/10/what-social-security-should-really-be-paying-to-survive-in-this-economy.html

Excerpt:

Inflation continues to rise in the United States. Although gas prices have recently fallen since their record high over the summer, the cost of groceries rose by 11.4 percent over the last year, and there is no expectation that they will fall back to reasonable levels. Prices overall have risen by 8.2 percent, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index report covering September 2022 as compared to the same month last year. While most working Americans are not getting hefty wage raises to compensate for inflation, seniors will see their Social Security benefits—which are pegged to inflation—rise next year. Starting in January 2023, beneficiaries will see an 8.7 percent cost-of-living adjustment (COLA) bump in their Social Security checks.

Conservatives are scoffing at this automated increase, as if it were a special treat that the Biden administration has cooked up to bribe older voters. Fox News reported that there was a “social media backlash” against White House Chief of Staff Ron Klain’s tweet lauding the upcoming increased COLA benefits for seniors. The outlet elevated comments by the conservative America First Policy Institute’s Marc Lotter, who retorted to Klain, “Nice try Ron. Raising benefits next year does not help seniors with the higher prices they are paying today or the higher prices they’ve been paying since you took office.”

But Social Security benefits have risen automatically with inflation since 1975 by design, precisely so that the livelihoods of seniors are not beholden to partisanship. This is an imminently sensible way to ensure that retired Americans, who spent their working lives paying Social Security taxes, can have a basic income.

If conservatives are complaining that an 8.7 percent bump is not enough to counter inflation, one might expect them to demand an even greater increase to Social Security benefits.

Author(s): Sonali Kolhatkar

Publication Date: 15 Oct 2022

Publication Site: naked capitalism

The History of the Social Security COLA: A Timeline

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/10/11/the-history-of-the-social-security-cola-a-timeline/

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Excerpt:

The first Social Security COLA — an 8% benefit increase — happened in 1975. The COLAs were effective in June of the applicable year. Since 1982, adjustments have taken effect in December, with benefit increases reflected in January payments.

Over the years, adjustments have ranged from no adjustment — in both 2009 and 2010 — to a high of 14.3% in 1980. The COLA was 5.9% in 2022.

The 2023 COLA will be 8.7%, the biggest increase since 1981. Here are some thoughts on a few notable past COLAs. Tap or hover your mouse over the graph to see the COLAs for each year.

Author(s): Roger Wohlner

Publication Date: 11 Oct 2022

Publication Site: Think Advisor

Pa. pension fund down over $3 billion in tough market, and braces for losses ahead

Mary Pat Campbell

Link: https://www.inquirer.com/business/sers-pension-drop-investments-retirement-20220923.html

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Excerpt:

The drop in global stock and bond values has shaved about $3 billion off the Pennsylvania State Employees’ Retirement System (SERS) during the second quarter, staff and consultants warned trustees in Thursday’s investment meeting.

The fund was worth $34.5 billion at midyear, down from $38 billion three months before, after counting an 8.5% investment loss for the quarter, along with payouts to 130,000 pensioners, and ongoing contributions from taxpayers and 100,000 state workers — lawmakers, judges, college staff, corrections officers, troopers, social workers — who hope to retire someday with pensions from the system.

The fund posted the decline as legislators have been weighing how to cope with pressure to boost pensions for more than 70,000 older state and public school retirees, whose last “cost of living allowance” increases took effect in 2004. Their pension checks, unchanged since that time, are losing pricing power after food, fuel, and other prices rose earlier this year at the fastest rate since the early 1980s.

Author(s): Joseph DiStefano

Publication Date: 23 Sept 2022

Publication Site: Philadelphia Enquirer

Sanders’ Social Security Bill Would Extend Payroll Tax to Capital Gains for High Earners

Mary Pat Campbell

Link:https://www.thinkadvisor.com/2022/06/10/bernie-sanders-new-social-security-bill-would-extend-payroll-tax-to-capital-gains-for-high-earners/

Excerpt:

Sen. Bernie Sanders, I-Vt., and Rep. Peter DeFazio, D-Ore., introduced Thursday the Social Security Expansion Act (SSEA), which would, among other measures, boost benefits, adopt the Consumer Price Index for the Elderly, or CPI-E, for benefit increases, and subject all income above $250,000 — including capital gains — to the Social Security payroll tax.

Dan Adcock, Director of Government Relations and Policy at the National Committee to Preserve Social Security and Medicare, told ThinkAdvisor Friday in an email that the DeFazio-Sanders bill, like the Social Security 2100: A Sacred Trust, introduced by Rep. John Larson, D-Conn., “both extend solvency and improve benefits.”

The Larson bill, however, “is consistent with President Biden’s pledge not to raise taxes on Americans earning less than $400,000 per year,” Adcock said, while “the Sanders-DeFazio bill is not.”

A Sacred Trust adopts the consumer price index for the elderly as the basis of the annual cost-of-living adjustment (COLA) and applies the payroll tax to annual wages above $400,000.

Author(s): Melanie Waddell

Publication Date: 10 June 2022

Publication Site: Think Advisor

Action on Social Security 2100 Bill Coming ‘Very Soon’: Rep. Larson

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/05/23/action-on-social-security-2100-bill-coming-very-soon-rep-larson/

Excerpt:

The House Ways and Means Social Security Subcommittee plans to debate his Social Security 2100: A Sacred Trust bill soon, Rep. John Larson, D-Conn., chairman of the House Ways and Means Social Security Subcommittee, told ThinkAdvisor in a recent email.

The legislation adopts the consumer price index for the elderly as the basis of the annual cost-of-living adjustment (COLA) and applies the payroll tax to annual wages above $400,000.

“We are in the process of working toward markup, which will be held hopefully very soon,” Larson said in the email.

Author(s): Melanie Waddell

Publication Date: 23 May 2022

Publication Site: Think Advisor