Link: STAR COLAS
Public Employers and the COLA Conundrum
With government workers’ pay raises lagging the private sector’s, state and local officials will need to navigate through different measures of inflation to fairly calibrate wage and pension increases. . . .
Seeing STARs
For pension funds, particularly those where public employers have volatile income tax revenues or operate under property tax limitations like California’s Proposition 13 that hobble the revenue base well below the inflation rate, one approach is what some California pension systems have adopted: the Supplemental Targeted Adjustment for Retirees, acronymized as the “STAR COLA.” Pension adjustments are capped at a fixed annual level, and future “make-up” payments — STAR COLAs — are provided if inflation subsides. In 2023, this means that these retirees will not receive an increase of more than 2 or 3 percent, depending on labor agreements, with the remainder of any CPI adjustment payable in future years if and when the inflation rate is lower than the STAR COLA’s predetermined hurdle rate.
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Denny
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