Public Employees, Retirement and the Cost of Living Adjustment (COLA)
The battle over the Cost of Living Adjustment, better known as COLA, is again in the Colorado courts. Why should this matter to you? For retirement planning purposes, any increases (or potential decreases) in pension funds can alter your vision for a healthy retirement income.
A recent article of Center for Retirement Research at Boston College (CRR) noted that the Cost of Living Adjustment, better known by the acronym COLA, has been suspended in 17 states for the pensions of public employees. And now the legal battle about public employees pensions continues in the Colorado courts. You can read about Colorado’s historic lawsuit at www.SavePERACOLA.com/resources.
You can also read the CRR article via their web link http://crr.bc.edu and the article titled “COLA cuts in State/Local Pensions” by Munnell, Aubry and Cafanelli. The key point as stated in the article is the “defined benefit promises in the public sector are not as secure as one would have thought…” For many state courts the COLA cuts were upheld on the basis that “COLA is not a contractual right.”
To date, the states that have cut or affected COLA for public employees in some way are: New Jersey, Rhode Island, Oklahoma, Washington (closed its plan), Wyoming, Colorado, Ohio, South Dakota, Minnesota, Montana, Illinois, New Mexico, Florida and Maine.
What does this mean for retirement? If you are a public employee and are depending on COLA increases throughout your retirement, you should review your plan and the recent legislation affecting COLA rights for public employees in your state. As noted, in the past, Colorado public employees had the COLA “shield” from inflation, but this might not exist for the future. If you would like advice about retirement planning in the state of Colorado, contact me. Having a strong and updated retirement plan can take into account and help to minimize disruptions due to future legal changes.
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