Putting a Number on Restoring COLAs

The virtual elimination of cost-of-living adjustments (COLAs) for New Jersey retirees was the linchpin of the 2011 reforms.  In a July 14, 2011 press release the governor claimed savings of:

  • $79 Billion in State Contribution Savings: Over the next 30 years, the state pension contribution will be $148 billion, a projected savings of nearly $80 billion. Without reform, the state was projected to contribute $227 billion over the same period.
  • $43 Billion in Local Government Contribution Savings: Over the next 30 years, local government pension contributions will be $70 billion, a projected savings of nearly $43 billion. Without reform, local governments were projected to contribute $113 billion over the same period.

Now that COLAs have been ruled to be a contractual right how much will it cost to make retirees whole?

Extrapolating from official proclamations of savings it would be about $100 billion in contributions over 30 years if the plan had another 30 years of existence.  It doesn’t.

COLAs were suspended as of August 1, 2011 and according to the Division of Pensions Fact Sheet #18:

Prior to the enactment of Chapter 78, P.L. 2011, the Pension Adjustment Program provided a cost-of-living adjustment (or COLA) to retirees and their eligible survivors if receiving a monthly retirement allowance from one of the state-administered retirement systems. The first COLA was paid in the 25th month after the date of retirement. Subsequent cost-of-living adjustments were computed annually and the adjustment was reflected in the February 1st check (which is payment for the month of January). If a beneficiary was entitled to receive a monthly pension upon a retiree’s death, the COLA was applied to that benefit based upon the year of retirement.
To calculate the COLA, the Division of Pensions and Benefits used the CPI for Urban Wage Earners and Clerical Workers (CPI-W), U.S. City Average, All Items, 1982-84=100. The rate of increase was equal to 60 percent of the percentage of change between the average CPI for the calendar year in which the member retired and the average CPI for the 12 month period ending August 31st immediately preceding the year when the adjustment was payable.

Using that as a road map with numbers coming from the CPI-W table a retiree who got a check for $1,000 in July, 2011 would now be getting a check for $1,037.18 if the COLAs continued.  Through July, 2014 that retiree would have been shortchanged by $822.*

Assuming $9 billion is currently being paid out to retirees and depending on the interest adjustment, if any, that amounts to about $600 million that is now due to current retirees in lost COLAs with another $30 million liability accumulating monthly.

After all appeals in this case are exhausted in about three years, if this ruling holds the fund might have just enough money left in it to make that final $5 billion payment.




For anyone who feels like checking my numbers:

COLA effective February 1 of each year based on 8/31 CPI-W factor

Average 8/31 CPI-W factor

  • 8/31/10: 212.94
  • 8/31/11: 218.84
  • 8/31/12: 224.82
  • 8/31/13: 226.23

Percentage increase applied February 1 with new dollar payment:

  • 2/1/12: 1.662%; $1,016.62
  • 2/1/13: 1.64%; $1,033.29
  • 2/1/14: 0.3376%; $1,037.18

Total payments missed: 12 x $16.62 + 12 x $33.29 + 6 x $37.18 = $822.00


22 responses to this post.

  1. Posted by Mark pallson on June 26, 2014 at 7:32 pm

    John something to consider, employees do not receive the .60 COLA until the second year of retirement. The mass exodus was prior to 2011 so 2013 would have been the 1st full year of missed colas for new retirees. Where do you think this puts those currently employed as far as colas. Is the 80 per cent funding issue dead. Keep p your hard work.


    • I tried to consider that in my final $600 million and $5 billion numbers but there was no way to estimate accurately without running the numbers individually (which the state should be able to do on their computer system) so I opted to put out accurate numbers on the increase calculation for a retiree who had passed the waiting period and then apply a fudge factor for those who hadn’t. I see $600 million as a fair approximation of what 3-1/2 years would come to and that number was so low because the CPI-W was so low. When those numbers go back to historical increase levels the outflows become massive.


      • Posted by truthnolie on June 26, 2014 at 10:47 pm


        FYI….COLA is not received “until the second year of retirement” but AFTER the second year of retirement, namely starting the 25th month after retirement


  2. Posted by Tough Love on June 26, 2014 at 7:53 pm

    John, Where you said …”After all appeals in this case are exhausted in about three years, if this ruling holds the fund might have just enough money left in it to make that final $5 billion payment.”

    I’m assuming that by saying …”to make that final $5 billion payment.”, you meant a final payout to retirees which would bring Plan assets (exclusive of active/terminator contributions and unpaid-out retiree contributions) down to zero ……… as opposed to a $5 Billion payment INTO the Plans.

    Is that correct (seems so, as I can’t imagine where we could find $5 Bilion to pay INTO the Plans in 2017)?


    • After taking out employee contributions and the state continuing to shortchange the funds that’s about right but I’m not expecting it since events intervene.

      What I see intervening, after reading half of the Berg decision is that payments for retiree health care will be severely curtailed (since the law is clear that that’s allowed) and they may take that savings and put into the pension buying a couple more years.


      • Posted by Javagold on June 26, 2014 at 10:01 pm

        Time to dump them all on Obamadontcare.


      • Posted by Tough Love on June 26, 2014 at 10:22 pm

        I too have felt that saving on retiree (and hopefully active worker) healthcare premium would offset part of the pension costs, but the savings (meaning cuts to current subsides … which in some cases are 100% of the premiums) would need to be massive and widespread.

        While Cristie would surely win a Court battle, the Unions (with the support of their bought-off legislators) will ferociously fight such reductions. It’s likely that they will need to be reminded that every dollar we don’t get in saving from healthcare costs is $1 we’ll have to take away from your pensions.

        And, if I recall correctly, the Obamacare law has provision (via a penalty) in place to prevent a wholesale dumping of retirees into Obamacare. Are you aware of the specifics ? The following is a link to an article on this issue, but it doesn’t say if the penalty for such dumping applies to Gov’t employers.



        • Posted by Anonymous on June 26, 2014 at 11:03 pm

          Yes….I believe there is a provision in there not allowing those already receiving employer sponsored healthcare to be dumped into Obamacare.

          One thing that no one is considering though is that while retiree healthcare might be addressed for state workers, what of municipal workers esp. police & fire the majority of whom have full coverage after retirement paid for by the municipality. While I know it can be changed going forward for current workers & new hires, those already retired were provided with that benefit as per their existing contract when they retired. Wouldn’t that bring up claims of the contract clause being violated (for those already retired I mean)??


          • Posted by Tough Love on June 26, 2014 at 11:13 pm

            Of course the fist question (and individual to each such locale), is whether the contracts SPECIFICALLY state that retiree healthcare cannot be reduced post-retirement.

            Personally, I believe that any municipality that agrees to such terms is beyond foolish and likely, “in the Union’s pocket”.

            Even if “some” protection” were appropriate, if heathcare costs rose so precipitously that actives had to pick up say an extra 10%-20% of the total cost, why should Taxpayer bare that added burden if retirees are excused from picking up the added cost attributable to their coverage?

          • Posted by Anonymous on June 26, 2014 at 11:22 pm

            A large sampling of at least police/fire contracts I have seen most of them say that the municipality will provide healthcare for the retiree & dependents until the retiree reaches age 65 or Medicare eligible. Hardly any I’ve looked at seem open ended or allow wiggle room.

          • Posted by Anonymous on June 28, 2014 at 4:21 pm

            I know I am going to get blasted for this but my municipality for police and fire provides free lifetime medical benefits for the retiree, eligible dependents and eventually the surviving spouse. When I am 65 I go on medicare and my Blue Cross becomes my supplemental policy for what medicare does not pay.I am also reimbursed for my medicare part B premiums. I also have the choice of getting medicare part D for prescriptions or keeping my prescription plan at no cost. The city strongly recommends keeping my prescription plan because although there is a copay there is no doughnut hole.

            The only catch is I must accept the Blue Cross PPO that is free (which is fine with me) if I want the Traditional Blue Cross I would have to pay part of the premium.

            My plan also comes with no deductible but there are copays for doctor visits etc until medicare kicks in and then there are no copays.

          • Posted by Tough Love on June 29, 2014 at 2:28 pm

            Anon, no reason to “blast” you. Who wouldn’t accept such benefits if offered?

            The ridiculously generous benefits you describe (ALL at Taxpayer cost, and many many times more generous and therefore costly than anything they get) are symptomatic of Public Sector governance out of control and with near zero consideration of the justification for, cost of, or fairness to the Taxpayers.

  3. Posted by Javagold on June 26, 2014 at 10:00 pm

    How would you like to be a public taker with 15 years on this ponzi pyramid. ….they are dead if they do, dead if they DON’T…… we are going to have a front row seat , of seeing what every public taker for himself looks like…..pass the popcorn !!!


    • Posted by Tough Love on June 26, 2014 at 10:28 pm

      15 years would be a lousy place to be. Even if a Plan freeze only applies to FUTURE salary/service increases, with the heavily “back-loaded” benefit-accrual-structure of DB Plans, their frozen pension would likely be only 1/4-1/3 of what it would be if the current Plans continued unchanged. In this case, they might have been better off with a DC Plan with a modest Taxpayer “match” from day 1.


  4. Posted by Javagold on June 26, 2014 at 10:45 pm

    Showboating closing its doors tonight……. Revel closing its doors next month….Atlantic Club already closed its doors….last one our, close New Jerseys door.


    • Posted by Tough Love on June 26, 2014 at 10:53 pm

      “Competition” reigns supreme in the Private Sector with survival of the fittest.

      Too bad (for Taxpayers) that “competition” never worked it’s way into the Public Sector arena. Had it done so, you can be assured that the current DB Plans would have been frozen 10-20 years ago, and we wouldn’t be in this financial mess today.

      Public Sector Unions are a CANCER inflicted upon Society.


      • Posted by Javagold on June 26, 2014 at 11:32 pm

        Both FDR and JFK, knew that we could be the case !!


        • Posted by Tough Love on June 27, 2014 at 12:40 am

          From Wikipedia ……

          “Executive Order 10988 is a United States presidential executive order issued by President John F. Kennedy on January 17, 1962 that recognized the right of federal employees to collective bargaining. This executive order was a breakthrough for public sector workers, who were not protected under the 1935 Wagner Act.

          Passage of the executive order forestalled the legislative Rhodes-Johnson Union Recognition bill, which would have given more power to federal employee unions, possibly creating a union shop arrangement.”


    • Posted by Carlos on June 27, 2014 at 11:21 pm

      Sounds on par with Christie’s wonderful NJ comeback. 6 credit downgrades,casinos closing left and right,online gambling failing,borrowing to the hilt,can’t balance a budget without stealing from one fund or another,indictments coming (he didn’t know about anything though.) Safe to say the State won’t be getting another Republican Gov. for decades. I honestly feel bad for the NJ republican party. They always kind of sucked,but this moron really sets them back.


      • Posted by bpaterson on July 1, 2014 at 12:11 am

        to a certain degree, i agree carlos but have to add that the democrats have no alternative person of leadership qualities, had total failures the last 3 times out and had become sufficient enough to say the dems are actually worse than the gop in this state to the point where I myself do not see any actual democrat party in the state, only self serving bums. So you have to admit in comparison Christie has been the best governor yet in the last 20 years. If the state wont get another gop governor, who would you be suggesting?


  5. Posted by fouls123 on December 3, 2014 at 5:43 pm

    All of these public employee bashers make me sick. The state chooses to put money other places rather than meet its obligations for years. The reason the state does not have enough money is the Whitman tax cuts which went mostly to the state’s wealthiest people. Let them reinstitute the tax rates and let the state meet its legal obligations. You can’t just not pay your obligaions for years and then cry poor. Try that with your mortgage payments or any debt you have encurred. The pension obligations are no different despite your attempts to blame the victims: the public employees.


  6. […] is a blog from a year ago updating the figures to show what COLA restoration would cost […]


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