Memorandum  PERAC Memo #29: 5% Local COLA option

Date:	11/18/2022
Referenced Sources:	PERAC Website

PERAC Memo #29, 2022

To All Retirement Boards:

M E M O R A N D U M

TO:                 All Retirement Boards

FROM:           John W. Parsons, Esq., Executive Director

RE:                 5% Local COLA option

DATE:           November 18, 2022

On November 16, 2022, the Governor signed Chapter 269 of the Acts of 2022 into law. This act provides the local retirement systems with a local option to increase the Cost of Living Adjustment (“COLA”) for Fiscal Year 2023 to up to 5 percent on the base amount specified pursuant to G.L. c. 32, § 103.  The approval of the increase can occur at any time during the fiscal year and will take effect as of July 1, 2022.

The local approval mechanism is different than traditional COLA increases and COLA base increases. In order for a system to adopt a COLA increase pursuant to this act, the retirement board must vote for the increased amount and then it must also receive local approval.  

For purposes of this act, local approval means:

• In a city, the mayor must recommend the increase to the city council and the council must vote in favor.  
• In a city having a Plan D or Plan E charter, the city manager must recommend the increase to the city council and the council must vote in favor.
• In a town, the chief executive officer[1] - the select board in nearly all cases - must vote in favor to accept the increase rather than the town meeting as is the case for COLA base increases.  
• In a district, or other political subdivision, the governing board, commission or committee must vote in favor to accept the COLA increase.
• In a regional system, two-thirds of the cities and towns within the system must approve the increase. This is done in the same fashion as stated above for municipalities: in a city, by the city council upon recommendation by the mayor or, in a city with a Plan D or Plan E charter, the city manager; or, in a town, by approval of the chief executive officer (likely the select board) as defined by G.L. c. 4, § 7. 
• In a county, the county commissioners, who normally do not have a role in COLAs nor COLA base increases, must vote to accept and two-thirds of the cities and towns within the system must approve the increase in the same manner as stated above for regional systems.

Though many local systems are comprised of multiple units such as housing authorities and districts, the two-thirds language only applies to regional and county systems as the approval specified in the statute only refers to cities and towns as voting political subdivisions.

Section 2 of the act provides that a COLA increase pursuant to this act is retroactive to July 1, 2022. Any COLA increase, in addition to any COLA previously adopted for FY 23, will become part of the fixed amount of a retirees’ retirement allowance in the same manner as all COLAs granted pursuant to section 103.

PERAC has already received questions about estimating the cost of the enhanced COLA. PERAC Actuary John Boorack has provided the following formula for a conservative full-cost estimate, not a one-year estimate, to assist boards in their planning:

(0.2) x (COLA base) x (# of retirees/beneficiaries)

If you have any questions about this memo, please contact PERAC’s General Counsel, Judith Corrigan, at [phone] or at [e-mail].

 

[1] As defined in G.L. c. 4, § 7, ''chief executive officer'', when used in connection with the operation of municipal governments shall include the mayor in a city and the select board in a town unless some other municipal office is designated to be the chief executive officer under the provisions of a local charter.