PERAC Executive Director & Chairman Bill Keefe called the meeting (remotely via Zoom) to order at 10:37 AM. Mr. Keefe explained that, because the meeting was remote, all motions made during the meeting would be voted on by roll call, and the meeting would be recorded.
Special COLA Commission members in attendance at the Zoom meeting included State Senator Michael Brady, MTRS Executive Director Emerita Erika Glaster, Mass. Taxpayers Foundation President Doug Howgate, PERAC Executive Director Bill Keefe, State Retirement Board Executive Director Kathryn Kougias, Executive Office of Administration and Finance Assistant Budget Director Amelia Marceau, PRIM Executive and Chief Investment Officer Michael Trotsky, Representative Dan Ryan, and President of Mass. Retirees Frank Valeri.
PERAC Staff, including First Deputy Executive Director Caroline Carcia, Assistant Deputy Director Patrick Charles, Actuary John Boorack, Actuarial Assistant Nate Geitz, Compliance Manager John Galvin, and Investment Analyst Anna Huang, were present at the Zoom meeting to provide technical expertise and support to the Commission members.
Other attendees at the Zoom meeting: Al DeGirolamo (Sen. Brady’s Ofc.), Jay Leu (PRIM), Jim Machado (Fall River Retirement Board), Jay McGowan, Karen Cross, Nancy McGovern (Mass Retirees), Seth Gittel (PRIM), Shawn Duhamel, Tom Bonarrigo &William Rehrey (Mass Retirees).
Minutes Approval
Commission member Doug Howgate motioned to approve the minutes from the April 14, 2025 meeting. State Senator Michael Brady seconded the motion, and a vote was taken:
Erika Glaster YES, Doug Howgate YES, Michael Brady YES, Bill Keefe YES, Kathryn Kougias YES, Amelia Marceau YES, Dan Ryan YES, Michael Trotsky YES, Frank Valeri YES. The minutes were adopted.
Discussion of COLA Reserve Fund Proposal
Mr. Keefe recapped that at the previous meeting, the group had planned to review several proposals. Mr. Valeri recently followed up with analysis ideas; however, due to time constraints, partly because Mr. Boorack attended an actuarial conference, those proposals will be held for the next meeting.
Mr. Keefe explained that the focus of the current meeting is on an idea previously discussed by the Commission, which was proposed by Mr. Valeri and Ms. Glaster: the creation of a COLA reserve fund or an accounting mechanism to set aside a portion of excess investment gains. The Commission has generally agreed that sharing excess gains could be an effective strategy. However, some concerns were voiced about setting an investment return target higher than the standard 7%.
Mr. Keefe further noted that a reserve fund approach could help alleviate this concern by providing a more flexible way to manage and allocate excess returns without relying on a rigid secondary benchmark. He then turned the discussion over to Mr. Boorack to elaborate further.
Actuarial Analysis Presentation
Mr. Boorack presented a spreadsheet with three tabs to illustrate how a reserve fund could be built using excess investment gains.
- On the first tab, he analyzed annual returns dating back to 2015, comparing each year's return to the actuarial assumption used in that year.
In a year where returns exceeded the assumption, a portion of the excess, currently set at 2.5%, is hypothetically credited to the reserve fund. No contributions are made when returns fall below the assumption.
Based on this model, applying a 2.5% credit rate since 2014 would result in a reserve balance of just over $1B by the end of 2024. Because the model is linear, increasing the credit rate to 5% would double the reserve to approximately $2.05B.
Mr. Keefe added that a previously estimated $1K increase to the COLA base would cost approximately $ 600M. He noted that the proposed enhanced benefit, depending on the specific parameters, would cost even less. As a result, allocating a relatively modest share of excess investment gains could be sufficient to fund these benefit increases.
- On the second tab, Mr. Boorack explained a model in which only investment returns exceeding the actuarial assumption by a specified threshold, such as 3%, are considered.
In the example provided, crediting 5% of those excess gains to the reserve each year would result in a reserve balance of just under $1B. He noted that the relationship is linear, so adjusting the threshold (e.g., to 2.5%) would proportionally affect the reserve balance.
- On the third tab, Mr. Boorack described a model where investment returns must exceed a high threshold, set at 15% in this example, for gains to be credited to the reserve.
Assuming there were three such years by the end of 2024, crediting 5% of the returns in those years would result in a reserve balance of approximately $1.5B. This model demonstrates that, depending on the selected parameters, the reserve can accumulate sufficient funds over 10 years to support a COLA increase, whether as a base increase, an enhanced COLA, or potentially both.
Mr. Valeri asked Mr. Boorack to explain the reasoning behind selecting the 5% figure used in the reserve fund model.
Mr. Boorack responded that the 5% figure was an example number, with no specific rationale behind it.
Mr. Valeri recalled that when a similar proposal was introduced around 2018 or 2019, he had recommended using a 30% reserve contribution rate. His rationale was that direct contribution accounts, such as the pension reserve and annuity accounts, typically comprised between 27% and 33% of the system’s total assets.
Mr. Boorack noted that the spreadsheet is flexible, allowing users to input different percentages to see how the reserve balance would change. He emphasized that using 3% or 5% in the examples was only to illustrate potential outcomes, not to suggest that these rates should be applied in practice.
Mr. Valeri asked Mr. Boorack how investment losses are accounted for in the last column of the spreadsheet.
Mr. Boorack explained that the three columns on the right show the reserve contribution, interest, and corresponding data. The negative interest values reflect two years when the actual investment return was negative. He further explained that the interest loss is the loss that is assumed to be incurred.
Mr. Valeri emphasized that, given limited methods to fund a base COLA increase and enhanced benefits, using excess investment gains is a practical approach. He noted that their Association has long advocated for this, particularly during periods of substantial investment returns. He further suggested that allocating a portion of those gains toward COLA and benefit enhancements is a strategy the Commission would likely support.
Mr. Boorack clarified that adjusting actuarial assumptions—specifically, the investment return rate—solely to pass a COLA base increase is not permissible. Any changes to assumptions must be based on analysis and comply with the actuarial standards of practice. Therefore, funding a COLA base increase would require either additional contributions from the Commonwealth or the use of a portion of excess investment gains.
Mr. Howgate noted his appreciation for the analysis but raised concerns about investment losses in certain years, specifically 2022. He emphasized that the primary focus should be on fully funding the system before setting aside money for a reserve. He also stressed the importance of ensuring the reserve approach is adaptable, so that recovering from significant losses takes priority over additional reserve contributions.
Mr. Valeri explained that setting aside gains is primarily an accounting measure to track performance over 10 years, not a removal of funds from the system. The money remains within the PRIM fund and is still in use. He emphasized that the reserve should reflect both gains and losses, with debits and credits applied accordingly, and noted that overall, gains have outweighed the losses.
Mr. Howgate expressed concern that setting aside funds for COLA increases could make it harder for the State to meet its target for unfunded liabilities by 2036, especially in years when the fund underperforms.
Mr. Keefe agreed that the key is finding a balance between supporting COLA increases and maintaining fiscal responsibility. He noted that Mr. Boorack’s model did not include contributions or deductions during negative return years and referenced input from both Mr. Valeri and Mr. Howgate in the discussion. He suggested rerunning the numbers to account for drawdowns in years with negative returns. He emphasized that the central issue is determining the optimal threshold and percentage for allocating funds to the reserve.
Mr. Valeri emphasized the importance of finding a "sweet spot" between achieving full funding by 2036 and addressing the needs of retirees. Representing 146,000 retired public employees and teachers, he emphasized that many retirees have received only a flat $390 COLA for the past 13 years, which hasn’t kept pace with inflation. He highlighted the urgency, noting that 3,000 retirees pass away each year, and by 2036, many will never have benefited from an enhanced COLA. While acknowledging the importance of full funding, Mr. Valeri emphasized that retirement security and fairness for current retirees should be a core priority of the pension system.
Mr. Howgate expressed respect for the previous viewpoint and agreed that finding a balanced approach is essential. However, he expressed concern about the budget impact, noting that the pension funding schedule has required annual increases of over 9% in recent years, which creates significant pressure on the State budget and may limit the ability to sustain such increases in the future.
Mr. Howgate emphasized that funding capacity is not unlimited and underscored the importance of maintaining a sound pension funding schedule while also supporting appropriate COLA increases. He stressed the importance of planning for potential down years to ensure that both funding goals and policy priorities, such as retiree support, can be balanced effectively.
Mr. Valeri acknowledged the overall pressure on the State budget. Still, he stressed that increasing the COLA base and providing enhanced benefits would have a relatively small impact on the system's total liabilities, despite the large numbers involved.
Mr. Trotsky referred to a footnote in a provided schedule indicating that the State's pension transfer amount increases by 9.63% annually until 2029, then drops to 5%, and later to 4%. He requested clarification on whether this increase represents actual cash from the State budget or only an accounting adjustment, expressing concern about the State's ability to sustain nearly 10% annual funding increases in the coming years.
Mr. Boorack explained that the 9.63% annual increase is based on the Commonwealth’s current funding schedule, which will be reviewed later this year following the January 1, 2025 valuations. He noted that the outcome of the valuations is unknown, so the schedule could change, potentially lowering the increase rate or extending the timeline, depending on the results.
Mr. Trotsky sought confirmation that the 9.63% funding increase is already included in all three budget plans—the House, Senate, and the Governor’s. Mr. Valeri and Mr. Howgate confirmed this.
Mr. Howgate acknowledged that COLA increases represent a relatively small cost compared to the overall pension system. Still, he emphasized the importance of maintaining the State’s long-standing discipline in funding its pension obligations. He noted that funding contributions are tied to the consensus revenue agreement and statute, coming off the top of the budget rather than being subject to annual appropriations. While all three budget proposals this year include using excess capital gains to meet part of the pension contribution, with safeguards in place, Mr. Howgate expressed concern about broader fiscal pressures. He cautioned that adding more pressure to an already strained system increases the risk of decisions like extending the funding schedule or using unsound budgetary tactics. He emphasized the importance of careful planning to prevent undermining the pension system’s integrity, the State budget, and Massachusetts' bond rating.
Ms. Kougias remarked that discussions about implementing this proposal have been ongoing for a long time and inquired about the ideal conditions necessary to move forward.
Mr. Valeri praised Mr. Boorack for the well-prepared spreadsheet and emphasized that it effectively addresses the key issues. While acknowledging broader concerns, he supported establishing a limited process to tap into excess investment gains. He noted that using excess gains is one of the few viable options to address the rising costs of COLA base increases or enhanced COLAs.
Ms. Glaster followed up with a question about timing, noting that the Commission’s report is due in October, around the time the Teacher’s valuation will be completed and after the State valuation is finalized. She asked whether, given this timeline, it would be possible to implement any changes for the next fiscal year. Mr. Boorack confirmed that it could.
Ms. Glaster raised concerns about the timing and legislative process, questioning whether it’s impossible to implement changes in the following funding schedule. If so, she suggested shifting focus toward a longer-term solution. She acknowledged the recent substantial investment gains and asked whether something could be done in the short term, at least to enhance them. She directed the question to the team, expressing concern about the possibility of having to wait another three years to incorporate any changes.
Mr. Valeri agreed with the idea of planning for a COLA base increase and suggested implementing it by July 1, 2026. He noted that the associated liabilities wouldn't affect the funding schedule until the following cycle, likely starting in FY30. He proposed using a portion of the excess investment gains from 2026 to 2028 to help cover these costs in the subsequent funding schedule.
Mr. Valeri emphasized that if the Commission recommended a legislative change to raise the COLA base or add an enhanced COLA, the financial impact wouldn’t be felt until 2030, just six years before the current funding schedule ends in 2036. He expressed concern about the compressed timeline and suggested possibly extending the schedule to 2040, positing that by 2036, the Commonwealth would have significantly reduced pension costs and would be in a stronger position to cover any remaining liabilities, which would be relatively small by then.
Mr. Howgate requested an estimate of the annual cost associated with the proposed COLA base increases. He referenced an earlier comment from Mr. Keefe and explained that he was attempting to understand the basic financial impact of starting the initiative sooner rather than later.
Mr. Keefe stated that a $1K COLA base increase would cost approximately $ 600M. An enhanced COLA, depending on factors such as retirement duration or salary thresholds, would cost significantly less, between one-third and one-quarter of the current amount.
Mr. Howgate sought confirmation that the $600M cost for a $1K COLA base increase would be a one-time contribution. Mr. Boorack concurred.
Mr. Keefe asked Mr. Boorack to clarify the annual budget impact of a $1K COLA base increase, noting that he had previously provided that figure.
Mr. Boorack responded that he couldn’t recall the exact figure but estimated the annual impact of a $1K COLA base increase to be approximately one-half of a percent of the total actuarial liability.
Mr. Keefe acknowledged that while the hypothetical reserve account hasn’t been formally established, the analysis suggests there is potential to allocate a portion of excess gains. However, he noted that determining how to do so remains a challenge for everyone involved. He questioned what the right balance would be—one that satisfies all Commission members, acknowledging that while there are shared interests, people approach the issue from different perspectives.
Ms. Glaster asked whether there’s an opportunity to pass a measure, such as through an outside section of the budget or a supplemental appropriation, in time for Mr. Boorack to incorporate it into the next valuation. She specifically inquired about the deadline that the Commission members would need to know, hypothetically, if $100M was allocated toward an enhanced COLA.
Mr. Boorack explained that there isn’t a strict deadline for incorporating changes. Still, to realistically reflect a full COLA base increase in the valuation, the information would need to be finalized before the State valuation is completed. He noted that work is still ongoing with his staff, specifically Nate Geitz (Actuarial Assistant – PERAC), who is in communication with the retirement board to resolve data questions. However, Mr. Boorack is unsure how far along they are in the process.
Mr. Valeri suggested that if the Commission makes a recommendation by next year, before FY27, it could include a directive to allocate a percentage of excess gains over the following three to four years. These gains could then be applied in the subsequent funding schedule to help pay off any liabilities resulting from an enhanced COLA or base increase.
Mr. Valeri, building on Ms. Glaster’s comments, expressed hope that the Commission could issue a directive by FY27 to begin setting aside excess gains to cover liabilities expected to start in 2030. He asked Mr. Boorack about the timing implications of such an approach.
Mr. Boorack responded that the timing would ultimately depend on whether and when any related legislation is passed.
Mr. Howgate outlined two key foundational questions that the Commission's recommendation should address. The first consideration is whether to propose establishing a structure in the upcoming triennial pension funding schedule that would allow for increased COLA benefits to take effect in the following triennial cycle, acknowledging that this approach would result in a significant delay. He added that while the first option focuses on long-term planning, it establishes a meaningful structure. The second key question is whether it’s possible to incorporate some level of COLA adjustment into the upcoming triennial funding schedule.
Mr. Howgate noted that incorporating adjustments into the following funding schedule is challenging due to the need for actuarial cost analysis. He confirmed that the Commission is essentially grappling with two fundamental questions: whether to plan for future COLA increases or attempt to incorporate adjustments into the upcoming schedule.
Mr. Valeri agreed with the discussion and noted that implementing an enhanced COLA would be much less expensive than a base increase. He expressed confidence that it could be implemented during the next funding cycle. He emphasized that it would directly benefit long-time retirees who have been most impacted by recent inflation.
Mr. Howgate acknowledged the fiscal constraints but emphasized the importance of showing positive progress and goodwill toward retirees living on fixed incomes. He expressed support for finding a feasible way to provide relief. He expressed interest in seeing a cost estimate for the enhanced COLA benefit, especially if the costs are relatively minor.
Mr. Keefe noted that cost estimates for the enhanced COLA benefit had been presented previously, although it has been some time, and various figures have circulated. He suggested revisiting those numbers at the next meeting and considering a dual-track approach—implementing the lower-cost enhanced benefit now (estimated at around $150M) while planning for a larger COLA base increase (around $600M) in the future.
Mr. Howgate acknowledged that the 9.63% annual funding increase would become increasingly burdensome, especially depending on Federal developments. He suggested exploring different ways to structure a short-term enhanced COLA to make it more manageable and appealing. While recognizing the need for fiscal balance, He emphasized the importance of offering more immediate relief to retirees rather than promising minimal increases years down the line.
Mr. Trotsky left the meeting at 11:23 a.m.
Sen. Brady apologized for having to leave the meeting early to attend a public service hearing in Boston. He thanked Mr. Boorack for his work on the presentation. He requested that a version of the reserve fund analysis using the 2.5% figure be emailed to him, noting that he could calculate the differences for other percentages himself. Mr. Keefe agreed to send the requested information.
Sen. Brady left the meeting at 11:25 a.m.
Ms. Glaster speculated that, due to anticipated investment gains for the FY25 valuation, a 9.63% annual increase might not be necessary to achieve the full funding goal by 2036. She emphasized the importance of legislative timing, expressing concern that if no action is taken, the Commonwealth will continue absorbing the gains as it has in past years. She questioned whether it was even possible to obtain legislative approval in time for Mr. Boorack to incorporate changes into the following funding schedule, acknowledging uncertainty about the legislative process but stressing the urgency of aligning all components.
Mr. Howgate acknowledged it may be difficult for the Commission to issue a formal report before its official deadline, but suggested a more informal approach in the meantime. He proposed that, over the next few months, members could engage with key officials, such as Secretary Gorzkowicz or legislative chairs, to share insights from the Commission’s discussions on COLA. This approach would help those preparing the following triennial funding schedule understand the potential implications of various COLA options, even without a formal directive. Mr. Howgate likened it to past legislative practice of requesting preliminary budget scenarios to aid decision-making.
Mr. Boorack explained that while it's possible to estimate the financial impact of raising the COLA base to various levels and create hypothetical funding schedules, he cannot include a higher COLA base in the official valuation without legislative action. The core issue is timing—unless the Legislature passes something soon enough, it won't be possible to reflect those changes in the upcoming funding schedule. If legislative action is delayed until after the Commission’s report is released in October, it will be too late to include in the current valuation cycle.
Mr. Valeri questioned how to incorporate the use of excess gains into planning when those gains are uncertain. He acknowledged the value of modeling different COLA base increases but noted that the large projected costs can be intimidating. He asked how such projections could realistically factor in unpredictable future excess gains.
Mr. Valeri acknowledged the shared concern over financial risk. Still, he expressed a preference for moving forward with a framework that uses excess gains, as it's both politically viable and aligns with the idea of sharing returns with retirees. He asked how such a model would be built, specifically, whether it would be based on estimated gains, such as assuming a 9% return.
Mr. Boorack responded that while he knows what the gains are, he cannot create a hypothetical model using them unless the Legislature explicitly directs him to do so.
Mr. Valeri suggested that, in theory, a reserve fund structure using a set percentage of excess gains could be developed, allowing for the estimation of actual costs based on those contributions.
Mr. Boorack cautioned that despite strong returns in 2023 (11.4%) and 2024 (9.5%), the negative return in 2022 (-0.108%) results in an overall shortfall when compared to the 7% annual return assumption. He warned that this would lead to an asset loss in the upcoming funding schedule.
Mr. Valeri pointed out that the previous funding schedule included an $8B gain and questioned Mr. Boorack on whether a single year of poor returns could significantly offset those gains. Mr. Boorack confirmed that it was correct, and he emphasized the impact of 2022's investment performance, noting that an approximately -11% return was about 18 percentage points below the expected assumption, which is a significant shortfall.
Mr. Keefe supported Mr. Howgate's suggestion to initiate discussions with key budget decision-makers. He proposed that representatives such as Mr. Howgate, Mr. Valeri, Chairman Ryan (House), Chairman Brady (Senate), and Ms. Marceau(A&F) could participate in meetings with the appropriate Ways and Means Chairs and Administration and Finance to advance the conversation.
Mr. Howgate acknowledged that, despite strong overall investment performance, even one bad year can significantly impact progress toward the 2036 funding goal, especially given the reduced assumed rate of return. He emphasized the importance of fairness to retirees and expressed willingness to participate in meetings with key stakeholders. The goal would be to present both near-term options for COLA adjustments and a longer-term structural approach that could sustainably support future enhancements.
Mr. Valeri expressed a willingness to participate in discussions with leadership.
Mr. Ryan expressed willingness to help guide the conversation and keep it focused, particularly in collaboration with Senator Brady. While acknowledging he’s still learning the details, he offered to help provide direction in both chambers, noting that proposed language will likely evolve before becoming law, but it's essential to get started.
Ms. Glaster suggested that if alternative funding schedules are being prepared, one option should include extending COLA-related liabilities to the statutory deadline of 2040, rather than 2036, to assess its impact on the overall plan.
Mr. Boorack responded that while it's possible to model extending COLA liabilities to 2040, the impact would likely be minimal since COLA is a small part of the overall unfunded liability. He added that extending the full schedule, not just for COLA, would be more meaningful, but agreed it’s something Commission members can explore.
Mr. Valeri asked for confirmation that any COLA enhancement would likely represent a small portion of the total pension liability.
Ms. Glaster suggested creating a separate column in the funding schedule specifically for COLA enhancements, similar to the one for the State ERI (Early Retirement Incentive).
Mr. Boorack explained that amortizing a $1K COLA base increase—estimated at $600M—would result in an initial annual cost of approximately $60M, which is minor relative to the $4B appropriation. Even as that cost slightly decreases over time, it would remain a small part of the overall funding schedule. He agreed to include it in the modeling, but noted that its impact on the total liability and funding schedule would be minimal.
Ms. Glaster suggested that framing the COLA enhancement as a small cost, essentially a rounding error, could help build support for it, especially since it would be a meaningful improvement for retirees.
Mr. Keefe noted that Mr. Valeri provided data to be added to the analysis for the next meeting. He acknowledged Mr. Howgate’s interest and suggested moving forward with small meetings involving key State-level stakeholders to share the Commission’s current thinking and potential options.
Mr. Keefe proposed setting aside the following agenda item—the Draft Principles—until a future meeting when all members, including Michael Trotsky and Senator Brady, are present. He expressed a preference for a full vote with everyone in attendance and asked whether a formal motion was required to defer the item.
Mr. Valeri motioned to postpone the vote on the draft principles, and Mr. Howgate seconded the motion, and a vote was taken:
Erika Glaster YES, Bill Keefe YES, Doug Howgate YES, Kathryn Kougias YES, Amelia Marceau YES, Dan Ryan YES, Frank Valeri YES. The vote to postpone the draft principles was adopted.
Logistical Issues
Mr. Keefe asked if June 9th or June 16th at 10:30 or 11:00 AM would work for the next meeting and said he would send out a survey to determine which date had the most consensus.
Commission member Mr. Valeri motioned to adjourn the meeting. Mrs. Kougias seconded the motion, and a roll call vote was taken:
Erika Glaster YES, Bill Keefe YES, Doug Howgate YES, Kathryn Kougias YES, Amelia Marceau YES, Dan Ryan YES, Frank Valeri YES. The meeting was adjourned at 11:43 AM.
Special Cost of Living Adjustment (COLA) Commission Meeting Documents
COLA Commission DRAFT principles 5-12.docx
COLA Commission 4_14_2025 minutes.docx
COLA Commission 5_12_2025 agenda__.docx
Estimated Reserve Fund Balance.xlsx
Approved,
Bill Keefe, Chairman
| Date published: | July 21, 2025 |
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