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Cost of Living Adjustment (COLA) Designs for New Hampshire

Cost of Living Adjustment (COLA) Designs for New Hampshire. How State and Federal Government Retirement Plans Maintain Purchasing Power. Cost of Living Adjustment (COLA) Designs for New Hampshire. By: Michael Altamirano Stephen Cheung Brandon DeBot.

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Cost of Living Adjustment (COLA) Designs for New Hampshire

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  1. Cost of Living Adjustment (COLA) Designs for New Hampshire How State and Federal Government Retirement Plans Maintain Purchasing Power The contents of this report were developed under grant P116B100070 from the U.S. Department of Education. However, these contents do not necessarily represent the policy of the U.S. Department of Education, and you should not assume endorsement by the Federal Government.

  2. Cost of Living Adjustment (COLA) Designs for New Hampshire By: Michael Altamirano Stephen Cheung Brandon DeBot The contents of this report were developed under grant P116B100070 from the U.S. Department of Education. However, these contents do not necessarily represent the policy of the U.S. Department of Education, and you should not assume endorsement by the Federal Government.

  3. Cost of Living Adjustment (COLA) Designs for New Hampshire Presented to: The New Hampshire House Special Committee on Public Employee Pensions Reform February 10th, 2012 The contents of this report were developed under grant P116B100070 from the U.S. Department of Education. However, these contents do not necessarily represent the policy of the U.S. Department of Education, and you should not assume endorsement by the Federal Government.

  4. Current System • New Hampshire currently allocates COLAs on an ad hoc basis • This is potentially problematic because: • COLA modifications subject to choice rather than mechanism. • Inconsistent funding ratios

  5. Other States Changes • 17 states in the past two years • All decreased future commitments

  6. Types of COLA Designs • Ad Hoc • Fixed Rate • Based on the Consumer Pricing Index (CPI)

  7. Types of COLA Designs • Based on Investment Earnings • Based on Break-Even Contributions • Based on a Reserve Account

  8. Limiting Factors • Caps • Different CPIs • Income Exclusions

  9. Federal COLAs • Social Security • Federal Government Employees

  10. Social Security COLA • Based on CPI-W • Consumer Price Index for an Urban Wage Earner and Clerical Worker • Compounds every year

  11. Federal Government Employees • Modified CPI-W • If CPI-W is between 0 and 2%, COLA stays the same • If CPI-W is between 2% and 3%, COLA = 2% • If CPI-W is > 3%, COLA = (CPI-W minus 1)

  12. Other Designs • Chained CPI-U • Substitution • Usually slightly lower than CPI-W – reduces benefits • CPI-E • Weighs medical expenses more heavily

  13. Comparative Analysis - Nationwide

  14. Comparative Analysis - Nationwide

  15. Comparative Analysis – New England Maine: Based on All-Urban CPI Vermont: Based on CPI, between 1% and 5% New Hampshire: Ad Hoc Connecticut: Based on Urban CPI, between 2.5% and 6% Massachusetts: Based on CPI, with max increase of 3% and $12,000 income cap Delaware: Only granted to Firefighters and State Police Groups

  16. Comparative Analysis – Solvent States • New York • Pennsylvania • Delaware • Note varying demographics

  17. Cost Impacts Example - Wyoming

  18. Policy Options

  19. Conclusion • Thank you for listening! • Questions?

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