New Jersey retirees receive disappointing pension news

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According to one CNN news report released on June 9, 2016, retirees who have worked as police officers, firefighters, teachers and government workers will not receive a cost of living increase. Instead, pension checks will remain at the same level they were in 2011. The report stated that the state Supreme Court on Thursday upheld a legal ruling that suspends cost-of-living increases for public retirees in the state.

The pensions, which were frozen in 2011 by Governor Chris Christie, are part of a bigger reform measure that requires some public workers to allocate a larger chunk of their paycheck to their retirement account. In response, retirees sued, claiming that the cost of living increases were safeguarded under a mandate that prohibits the state government from reducing benefits. However, the higher court ruled in favor of the state’s governor, citing that COLA adjustments are not protected, which, in turn, overruled an appellate court’s prior decision.

COLA, itself, stands for Cost-of-living Adjustment or is an acronym that means Cost-of-living Allowance. COLAs are pay raises that cover the cost of inflation, which affect one’s expenditures for rent, gas, food and clothing. According to the Social Security Administration, legislation that went into effect in 1973 provides for COLAs in pension plans and in employees’ earnings. Social Security and Supplemental Security Income (SSI) benefits are designed to keep pace with inflation when COLAs are enforced.

The Social Security Act features a uses for calculating COLAs. The formula bases COLAs on increases in the Consumer Price Index (CPI) for urban wage earners and clerical workers (CPI-W). CPI-Ws are determined each month by the Bureau of Labor Statistics (BLS). The last year that a COLA became effective was 2014. According to the news report COLA adjustments will stay suspended until state funds hit a specific funding target. The pension program in New Jersey covers around 770,000 retirees and workers.

Unfortunately, the pension fund in New Jersey is underfunded. Therefore, it is impractical to maintain COLA adjustments as it would severely affect the fund’s liability. As the fund is already $40 billion in the hole, including COLA adjustments would increase the funds’ liability by around 33%.

Nevertheless, workers are still unhappy about the Supreme Court’s decision. Wendell Steinhauer, the President of the New Jersey Education Association, said he was “outraged” by the verdict. He added, “Our members were promised a COLA as part of their compensation, and they did the work required to earn it.”

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