Andover Townsman, Andover, MA

November 21, 2013

COLA increase would have costly impact

The Andover Townsman

---- — Editor, Townsman:

After reading Fred Sunderland Jr.’s My View (”Retirees deserve a cost-of-living boost to pension,” Nov. 7), I felt compelled to respond to some of the information Mr. Sunderland presented and to give some more insight on the matter. His assertion that Andover “must” raise the COLA base and that it is not that expensive is questionable at best when one digs a little deeper and looks at the consequences of initiating this change.

His point about the COLA adjustment on the first $12,000 is a simple truth and so is his claim that COLA adjustments to Social Security benefits are on the entire benefit. He happened to leave out though that the average Social Security benefit is only $1,269 per month, or $15,228 per year, not very far off from the $12,000 base. It should also be known the COLA limit of 3 percent per year is an arbitrary percentage and COLA awards are given simply because the awarding authority can award them, not because the COLA is based on any statistical inflation calculation. For example, most retirement systems have always approved the maximum 3 percent award year over year, irrespective of actual inflation, while since 2009, the COLA provided to Social Security benefits was: 0 percent, 0 percent, 3.6 percent, 1.7 percent and 1.5 percent. So although the COLA base of $12,000 is less than the average Social Security benefit, the rubber stamping of COLA’s above the actual inflation rate has benefitted retirees quite well.

His assertion that Massachusetts public employees cannot collect Social Security benefits is also a bit flawed. If a worker has completed 40 working quarters and paid FICA taxes on the wages, that employee is entitled to a benefit at retirement. However, the benefit can be reduced by the Windfall Elimination Provision enacted in 1983. Such a blanket statement that public employees “cannot” collect Social Security benefits is unjust.

It should also be noted that of the six surrounding communities Mr. Sunderland listed, only one, Methuen, enacted the change independently. The other five are part of two different regional or country retirement systems (Middlesex Country Retirement Board and Essex Regional Retirement System) that in total make decisions for a combined 117 towns, cities and government entities. So although he touts the communities around Andover that raised the COLA base, in fact these five communities had little to no say in the decision to raise it and now must bear the increased costs to their local taxpayers. The Lawrence City Council voted down a COLA base increase at its Oct. 1 meeting due to the increased long-term costs of the base change.

The Pioneer Institute recently released a report on the effects of COLA base increases on Massachusetts retirement systems. Their calculations estimated an increased benefit cost of approximately $875,000 to the Andover retirement system if the COLA base is raised to $13,000 — a system that is only 49.7 percent funded and scheduled to be fully funded by 2040, ranking dead last, 104/104, out of all funding schedules. Further investigation will show although Andover employees do indeed contribute to their pension fund, the cost of benefits over the next five years outpaces total contributions by the employees and the town, not including a supposed 7.75 percent return on investments, by almost $19,000,000, further straining the fund balance, while most likely increasing actuarial liability.

In conclusion, I do believe Mr. Sunderland’s intentions are in the right place by advocating for retiree benefits to have commensurate buying power in the future. However, many citizens and taxpayers may not understand the financial ramifications of making COLA base increases since the overall pension system has multiple flaws that require action from our cohorts on Beacon Hill to fix.

Christopher R. Cook

North Street