Pension crisis complicated by cost of living adjustments
SPRINGFIELD-- Cutting future raises would damage the value of state pensions, according to a new University of Illinois study.
Professor David Merriman, associate director of the university’s Institute of Government and Public Affairs, cautions against considering the state’s flat 3 percent annual raise a “cost of living adjustment.” He calls it instead an “escalator,” as it has nothing to do with the rate of inflation.
“A COLA is thought of as a cost-of-living adjustment, and a lot of pensions have had those in the past,” says Merriman. “They’re usually tied to the rate of inflation.”
In his report, Merriman writes: “A pension of $50,000 in 2013 would grow by 75 percent to more than $87,000 by 2033 under the current escalator clause. Depending on the rate of inflation during this period, the purchasing power of the pension might either increase or decrease.”
“We, as society, have to decide how to split the costs among three groups: how much of the burden should people who own the pensions bear, how much should the general taxpayers bear, how much should the employers bear.”