Cost of Living Reductions IP: 72.184.14.239 Posted on November 26, 2008 at 03:52:40 PM by david keene
I have been asked to explain how and when the Cost of Living awards that retirees have been issued so far can be reduced.
There are two scenarios in which this can occur:
1. If the market plunges into a long and protracted deflationary period (Depression) where prices for goods and services are drastically reduced to the point that it negatively effects the Consumer Price Index this could happen. In other words money becomes scarce because jobs and production drops drastically.
If the CPI goes into the negative then past COLA awards should be reduced.
I don't believe this will happen because the Federal Government took the dollar off of the gold standard in the early 1970's and now prints money when it needs it. More than likely we will have hyper-inflation if the dollar crashes and becomes worth much less in the world market.
Either way our purchasing power will be reduced.
2. The other way that COLA awards we have already received can be reduced is if the Pension Board approves a methodology that assigns negative investment returns to the Post Retirement Adjustment Account that cut into the Allocated portion of the PRAA.
I was a trustee when the terms Allocated and Unallocated COLA were developed. The contract states that Benefits may be increased but not reduced. This means that once you give a benefit you can't take it away.
Allocated COLA awards are the COLA payments received thus far to cover each retiree and his or her significant other until death. The Unallocated COLA are the reserves that are used to pay COLA (cost of living adjustments) in those years that the Fund does not make it's required 5% growth.
Now that the Board has assigned negative returns to the PRAA (an account that by contract receives only excess of 5% return) it will be interesting to see if this negatively affects our COLA.
This , of course , is why we took this issue to court. We were trying to protect the PRAA,for everybody.
I welcome any questions or discussion on this issue.
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