Cost-of-living Adjustments 

Colorado. Chapter 2, Laws of 2010 (SB 1), reduces PERA’s commitment to post-retirement cost of living adjustments.

• Reduces the COLA to the lesser of 2% or inflation for 2010, and requires the inflation calculation to be based on periods in 2009, resulting in a 0% COLA;
• Limits the COLA to 2% in 2011 and future years, unless PERA experiences a negative investment return, in which case the COLA will be calculated as the lesser of the inflation from the preceding 3 years or 2 percent;
• Provides for COLA adjustments to be made with the July benefit, and requires those that retire after January 1, 2011, to receive benefits for at least 12 months before receiving a COLA adjustment; and
• Sets rules for adjusting the COLA based on PERA's actuarial funded ratio.

Suit has been filed challenging the reduction in benefits as a violation of contract.

Illinois. Public Act 96-0889 (SB 1946) affects most statewide pension plans. The bill’s provisions include the Chicago Teachers' Pension Fund, Metropolitan Water Reclamation District, Cook County employees, Chicago municipal employees, Cook County Forest Preserve, Chicago Park District, Judges Retirement System, General Assembly Retirement System, State Employees Retirement System, Illinois Municipal Retirement Fund, Teachers Retirement System, Chicago laborers, and the State Universities Retirement System. Excluded from the bill are the Chicago Transit Authority, Chicago fire or police, downstate and suburban fire and police plans, and those covered by the sheriff’s formula in the Illinois Municipal Retirement Fund. Provisions apply to those who become members of plans on or after January 1, 2011.

Post-retirement increases will be available one year after a beneficiary begins receiving benefits or reaches the age of 67, whichever is later. The increase will be 3% or 50% of CPI, whichever is less, but not less than zero. The increases will apply only to the base annuity, and will not be compounded. Current law provides an annual 3% increase for SERS and TRS, compounded. For members of the General Assembly plan and judges, the annual post-retirement increase will be at full CPI.

Maryland. Chapters 56 and 57, Laws of 2010 (SB 317 and HB 775), require that retirement allowances for most Maryland State Retirement and Pension System (MSRPS) retirees not be subject to COLAs in fiscal 2011 if the average change in the CPI-U from 2008 to 2009 is negative. If COLAs are not applied in fiscal 2011, then fiscal 2012 retirement allowances must be reduced by the difference between fiscal 2010 allowances and the allowances that would have been paid in fiscal 2011 if COLAs had been applied. The acts do not apply to retirees of the Legislative Pension Plan or the Judges’ Retirement System, whose benefits are linked to the salaries of active legislators and judges, respectively. The Acts also require the MSRPS Board of Trustees to study options for addressing future situations in which the CPI-U is negative and report its findings and recommendations to the General Assembly.

Michigan. Act 75 of 2010 (SB 1227) provides that all newly hired school employees after July 1, 2010 will be enrolled in a hybrid defined benefit and defined contribution system. The hybrid plan eliminates cost of living adjustments to pension allowances.

Minnesota. Chapter 359, Laws of 2010 (Senate File 2918 and House File 3281), provided for post-retirement increase rate reductions or suspensions. Generally speaking, for state-administered plans, post-retirement increases are reduced from existing rates until plans attain a 90% funding ratio, based on the market value of assets as a percentage of the AAL. For example, for Minnesota State Retirement Plan general employees, legislators, constitutional officers and some others, the rate is reduced from 2.5% to 2 % and for the State Patrol Plan from 2.5% to 1.5%. For Public Employee Retirement Association members other than Police & Fire, the rate is reduced from 2.5% to 1%. For the Teachers Retirement Association, the post-retirement increase is suspended for 2011 and 2012, to be followed by 2% increases until the plan is 90% funded. The bill also requires a retiree or beneficiary of any State Retirement or Teachers Retirement Association plan to have been retired at least six months before qualifying for an initial post-retirement adjustment.

For further details, see the bill summary of the Legislative Commission on Pensions and Retirement.

Legal challenges have been filed.

Rhode Island. Public Law 23 of 2010 (HB 7397(the budget bill), Article 6, reduces post-retirement benefit increases for state employees, teachers, justices and judges who are ineligible for retirement as of the date of enactment. The legislation limits post-retirement cost of living adjustments for such future retirees to the first $35,000 of retirement benefits, with that base to be increased annually by the CPI-U or 3%, whichever is less. 

South Dakota. Chapter 20, Laws of 2010 (SB 20), makes various cost-saving changes affecting post-retirement increases. The bill:

• Removes COLAs for retirees in the first year of retirement.
• Reduces refunds of employer contributions to people who withdraw from the system after July 1 2010. Current law provides a 75% refund to non-vested members and 100% to vested members; the percentages are reduced, respectively to 50% and 85%.
• Pins the annual improvement factor (COLA), currently 3.1%, to 2.1% for one year, and thereafter pins it to the market value funded ratio for the system.

1.      If the ratio is 100% or more, the COLA remains at 3.1%

2.      If the ratio is 90% to 99.9%, the COLA will be indexed to the CPI with a maximum of 2.8% and a minimum of 2.1%

3.      If the ratio is 80% to 89.9%, the COLA will be indexed to the CPI with a maximum of 2.4% and a minimum of 2.1%

4.      If the ratio is less than 80% the COLA will be 2.1%

According to the Pierre Capitol Journal , June 16, 2010, retirees have filed a challenge to the law on the grounds of a violation of contract.

Virginia. Chapter 737, Laws of 2010 (HB 1189/SB 232), for those hired or rehired after July 1, 2010, reduces the portion of the increase in the Consumer Price Index used for determining annual retirement allowance supplements ("COLA") from three percent plus one-half of the next four percent to two percent plus one-half of the next eight percent.