News & Announcements
2023 COLA Update
May 10, 2023
In 2022, PERA celebrated its 75th Anniversary and paid out approximately $1.37 billion to 44,115 retirees and their beneficiaries. We currently have 46,901 active members and 335 participating employers and have come a long way since 1947. A quick recap of Senate Bill 72 (SB72) – the Cost-of-Living Adjustment (COLA) received by retirees was replaced with a 2% non-compounding 13th check payment for three years for most retired members. Retired members who were age 75 or older as of 6/30/2020, who earn less than $25,000 and had at least 25 years of service, and disability retirees who earn less than $25,000 continued to receive a 2.5% compounding COLA during that same time frame. The final year of the 13th check payment was 2022 and 28,669 members received those payments. The 2.5% COLA was received by 12,020 retired members.
The other half of SB72 contained a 4% increase in contributions, split evenly between employees and employers, phased in over a 6-year period. In the first two years of this increase, PERA received approximately $32.4 million in additional contributions to the fund. These increases are recurring and will continue to increase through FY26.
Effective July 2023, PERA will transition to a profit share COLA model. The compounding COLA will resume, however the annual COLA increase will be based on our funded ratio and investment return of the prior year. The funded ratio reflects the ratio between the available assets on hand and the liabilities that we have incurred. Our funded ratio as of 6/30/22 is 70%. This past year was tough for investors and PERA’s return was -1.67%. While a down year is never good news, the median pension fund had returns of -9.1%. In the year prior PERA returned just over 24%, our highest ever.
We mention this point because our returns will be volatile; however, our returns are “smoothed” over a 4-year period. In a public pension system, asset smoothing recognizes market gains and losses gradually over several years. This means that future COLA’s will benefit from our 24% return but also be affected by our recent negative return. The new model guarantees a minimum 0.5% (half-percent) COLA and a maximum of 3% going forward. Once PERA reaches 100% funded status, the maximum COLA will increase to 5%. PERA retirees will be receiving a .5% (half of one percent) compounding COLA, which will be included with your 2023 July benefit payment.
We want to assure you all that PERA is in a healthy position and the reforms made in SB72 only improves our solvency going forward.
You can find a PERA COLA Overview Webinar recording in PERA's Video Library.