Senate considers pre-funding COLA for future state employees under new PERS tier

• “I don’t know of anything more conservative than putting money away today for a future expense,” Senator Daniel Sparks said.

The Senate Finance Committee passed a bill that would add $5 million per year over 10 years for future cost-of-living adjustments (COLA) for new state employees hired after March of this year under the new Tier 5 in the Public Employees Retirement System (PERS).

The bill, SB 2613, is authored by State Senator Daniel Sparks (R).

An account would be established and managed by PERS to hold and invest the funds as is done with other state funding for the retirement system.

“This money will grow. We are pre-funding a COLA,” Sparks told the committee. “I don’t know of anything more conservative than putting money away today for a future expense.”

Under the new Tier 5, a COLA is not guaranteed for incoming state employees. Sparks said each year the Legislature would determine if a COLA was possible by examining funding and the Consumer Price Index.

“We feel this bill would show once again that the Senate is taking the position that we’re in the process of stabilizing the PERS system,” the senator said.

“It’s the exact opposite of what we did in 1999, which was give a 3 percent COLA and not pay for it,” said Sen. Daniel Sparks, R, adding that the negative cash flow that resulted has contributed the challenges with PERS.

PERS currently has $26 billion in unfunded liabilities. This realization has legislators considering several ways of reducing that number over the coming years, which started last session when the new Tier 5 was created.

The Senate recently passed a bill that would transfer $500 million from the Capital Expense Fund to the PERS account as of July 1. Subsequent transfers of $50 million from the Capital Expense Fund would then be made annually until July 2036. The House is also expected to offer their take on how to provide a dedicated funding stream for PERS in the weeks ahead.

Senator Sparks said investing the $5 million for a COLA now for those in the new Tier 5 would allow future lawmakers “10 to 12 years down the road” to be able to vote to provide a COLA based on inflation or other financial realities.

Not all Senators are pleased with Tier 5. They have heard from constituents while out of session who have expressed concerns, mainly over the length of service required for retirement and having a COLA left to the whim of future legislatures.

“I believe this is just kind of a talking point to cover up the fact that retirees no longer will have a guaranteed COLA,” said State Senator David Blount (D) of Sparks’ bill.

Blount also asked if repealing Tier 5 was germane to the bill but the chair, State Senator Josh Harkins (R), said it was not. Blount then further expressed his displeasure with the new tier and Sparks’ legislation.

“Don’t act like you’re doing something with this that will replace an actual pension with a real COLA,” Blount said. “What we need is a real pension system that people can count on.”

The bill could be considered on the Senate floor as early as this week.