COLA adjustments in retiree pension payments


To: Mayor and Board of Aldermen
From: C. Paul Smith
Date: May 21, 2009
Re: COLA adjustments in retiree pension payments

For the reasons given below, I intend to oppose making any change in the retirement pay benefits that are scheduled to be reduced by about 1% this coming year.

1. The benefits are subject to a contract that was made years ago by the City and the retirees or prospective retirees. The argument that the City is now doing something that is unfair to these retirees is absolutely unfounded. This is a matter of contract. This is not an issue of payment for on-going services.

2. I have been contacted by over a dozen retirees—all but one of whom were retired police. The benefits in their retirement package were specifically negotiated by the police with the City. Many benefits were secured, including the option for a 22-year retirement plan. It is disingenuous to say that the City is now being unfair by enforcing the provisions that both parties previously negotiated.

3. Section 35 of the retirement plan specifically provides that each year the payments will be adjusted according to changes in the CPI. Theoretically, these benefits will go up or down, according to the economy (as reflected in the CPI). The very purpose of COLA provision is to insulate the retiree pay from inflation. But conversely, the potential downward adjustment serves to protect the City from taking a financial hit if the economy experiences deflation. When the COLA adjustments work in both directions, this is fair to both parties. It would be unfair to the City and to the taxpayers to now change the terms of the retirement contract to prevent downward adjustments, but only to allow upward adjustments.

4. IF the City were to make additional payments such that there were no decreases in retirement payments this year, it would cost the City $685,000. This is a cost that would be born by the City taxpayers.

5. The City retirement benefits are quite substantial. The pay portion is only part of the benefits; the medical benefits are also substantial and are not affected by the slight decrease in the CPI.

6. I can understand why anyone whose retirement benefits would be reduced slightly, might not like it. But the fairest action for most people is to continue to honor the terms of the original negotiated agreement between the City and the retirees.

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