The Senate Ways & Means Committee voted HB 1985 out of committee unchanged on February 23, and then on February 28 the full Senate passed it off the floor on a unanimous vote. The bill did not receive any amendments during its time in the Senate, meaning it has passed the Legislature. It will now go to the Governor’s desk for signature.
House passes PERS 1 COLA, hands it off to the Senate
February 7, 2024
The House of Representatives passed HB 1985 on February 6 with a unanimous vote. It now goes to the Senate for consideration. The House adopted an Appropriations Committee amendment that lowered the monthly payment cap from $125 to $110. According to the updated fiscal note, with this adjustment, the bill now costs local governments $105.3 million over the next 10 years. AWC will continue to track the bill as it moves through the Senate.
House is on track to again authorize an ad hoc PERS 1 benefit increase
January 26, 2024
Another bill to provide an ad hoc cost-of-living adjustment for PERS 1 retirees is making its way through the House. The bill is now in the House Rules Committee, waiting to be pulled to the floor for a vote.
HB 1985 joins a long list of bills in recent years that provide a one-time, ad hoc cost-of-living adjustment for PERS plan 1 retirees. The current version of the bill authorizes a 3% benefit increase, capped at $110 per month per retiree. The cap was lowered by the House Appropriations Committee from $125 per month before the bill was voted out of committee. The Legislature has previously authorized ad hoc PERS 1 COLAs in 2018, 2020, 2021, and 2023.
Important context for those new to local government pensions: Most city employees are part of the state-managed Public Employees Retirement System (PERS) which started with plan 1 (closed to new members in 1977) and is now on plans 2 and 3. Unlike plans 2 and 3, PERS plan 1 does not have a built-in cost-of-living adjustment, so public employers and plan 1 employees did not make contributions to cover regular COLAs while plan 1 employees were still working. It also means that PERS 1 retirees’ pensions lose purchasing power over time due to inflation.
Each time the Legislature mandates a PERS 1 COLA, today’s public employers bear the entire cost funding the benefit increase typically through an additional surcharge on today’s employer pension contribution rates, called the unfunded actuarily accrued liability (UAAL) surcharge. According to the fiscal note for the original version of HB 1985, this proposed one-time COLA will cost local governments an additional $116.9 million over the next decade.
To further complicate the issue, under SB 5294 (2023), the existing UAAL was supposed to be scaled down to 0.5% by 2027 (the 2024 UAAL is 2.5%) as the PERS 1 fund becomes fully funded under current law. This new proposed COLA would tack on an additional UAAL surcharge that will need to be carried by public employers over the next decade. The Select Committee on Pension Policy is also currently studying ways to eventually incorporate an automatic regular COLA into PERS 1, much like PERS 2/3 already have.