Each year, the Board of Trustees obtains a report from its actuary concerning the feasibility of a cost of living adjustment. By law, an adjustment can be granted only if the actuary recommends it and certifies in writing that the adjustment would likely be sustainable. Again this year, the actuary could not recommend a cost of living adjustment. Accordingly, the Board and City Council cannot legally authorize an adjustment.
The ongoing loss of purchasing power for retirees continues to be of concern to the Board of Trustees. They have worked diligently over the past year to develop a comprehensive funding policy to both set forth the mechanics of measuring the financial health of the System and outline the conditions under which a cost-of-living increase could be considered. The Board adopted the policy at their November 25, 2014 meeting.
As the financial condition of the System improves, it is anticipated that there may be competing interests and the funding policy seeks to establish a hierarchy of priorities. The first priority, as established by the Board, is to restore regular cost-of-living adjustments for retirees, but only when the System is on solid financial footing. This translates to a funded level of at least 80% with an amortization period of 20 years or less after adding the liabilities for continuing adjustments. To understand the actuarial jargon, it is helpful to think of this like your home it's like saying you will make improvements to your home only when it is at least 80% paid for and the remainder will be paid off in 20 years or less.
It is important to note that the City Council controls the supplemental contributions they are making to support the retirement system. But the COAERS Board of Trustees has established that they would only give their support to a reduction in contributions if the Retirement System is 105% funded and retirees are receiving annual cost-of-living adjustments.
Likewise, the Texas Legislature controls benefit provisions, but the Board would only support increases in benefits (such as a decrease in retirement age, or a multiplier increase) if the Retirement System is 120% funded or greater, retirees are already receiving annual cost-of-living adjustments, and the required City contribution rate is less than or equal to eight percent.
Even with the funding policy in place, the point in time at which a cost-of-living adjustment can be recommended remains uncertain; but we are on a path that will eventually achieve that goal. A copy of the complete funding policy is available at this link.