Abstract
During the Illinois General Assembly’s January 2013 special session a proposal to limit the so-called Cost of Living Adjustments (COLAs), a component of public employee pensions, was much discussed and debated. Under current pension rules many state workers and retirees have been promised that the pension benefits they receive will rise by 3 percent per year.
Highlights
This benefit is often described as a Cost of Living Adjustments (COLAs) but, is unrelated to the cost of living or inflation and is more properly termed an “escalator” clause
Proposals made in the Illinois General Assembly to limit the Cost of Living Adjustments would decrease the value of public pensions
The simplified calculations here show that the proposed changes would significantly reduce the value of benefits even for claimants with a relatively small pension and a high discount rate
Summary
This benefit is often described as a COLA but, is unrelated to the cost of living or inflation and is more properly termed an “escalator” clause. Proposals made in the Illinois General Assembly to limit the Cost of Living Adjustments would decrease the value of public pensions.
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