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Brown, Jeffrey, et al. Six Simple Steps: Reforming the State Universities Retirement System. Institute of Government and Public Affairs. University of Illinois. March 12, 2013. http://igpa.uillinois.edu/system/files/Six-Simple-Steps-for-ReformingSURS.pdf 2 United States. Social Security Administration. History of Automatic Cost-Of-Living Adjustments.October 26, 2012. http://www.ssa.gov/cola/automatic-cola.htm
percentage loss in purchasing power caused by a change to a Half-CPI COLA to members of TRS and SERS is demonstrated in the chart below: Table 1: Half-CPI COLA Cuts Pension Value Between 23.6% 25.4% Years in Retirement TRS Purchasing Power Loss SERS Purchasing Power Loss 5 6.5% 7.1% 10 12.6% 13.6 % 15 18.3% 19.8% 20 23.6% 25.4% In a December 2012 report, We Are One Illinois studied the effects of a SB 1-style COLA cut and found the following results: Table 2: SB 1-Style COLA Cuts Pension Value Between 28.1% - 30.7%3 Years in Retirement TRS Purchasing Power Loss SERS Purchasing Power Loss 5 13.7% 13.7% 10 19.3% 18.2% 15 25.0% 23.0% 20 30.7% 28.1% Teachers, nurses, caregivers, public safety officers, and other public employees and retirees would substantially face the same COLA diminishment as SB 1 under the IGPA plan. The Constitutionality of a Half-CPI COLA Is Questionable at Best The IGPA report acknowledges that the change in COLA could be considered a diminishment of benefits. To counter such arguments, the authors assert,[i]n our view, it would be constitutionally permissible to reduce the expected average future increase in exchange for the valuable insurance protection that individuals would receive during periods of high inflation. However, the authors cite no legal opinion and testified before the pension conference committee that no legal opinion had been sought to support this view. Further, this argument fails to recognize that the IGPA proposal does not truly or fully protect public employees and retirees from inflation but, instead, locks in the loss of purchasing power every year because annuities are adjusted at Half-CPI. Conclusion Cutting COLAs from the current 3 percent compounded rate to a formula based on Half-CPI is a substantial reduction in benefits like other extreme measures, such as SB 1. Counter to proponents claims, it is not balanced by enhanced benefits to participants, and it is of dubious legality. Experience over the last three decades shows that partial protection from hyper-inflation is of little value compared to the way the current COLA preserves pensions purchasing power by accurately adjusting annuities according to increases in the cost-of-living in modern economic times. The Half-CPI diet COLA offers no more than the illusion of inflation protection or retirement security to those who have faithfully contributed toward their pensions and served the public.
We Are One Illinois. Analysis of Worker and Retiree Pension Benefit Cuts under the Quinn Plan and HB 6258. December 17, 2012. http://www.weareoneillinois.org/documents/studies.pdf