Policy Research Shop Support for the Policy Research Shop is provided by the Ford Foundation and by the Fund for the Improvement of Postsecondary Education, U.S. Department of Education. Policy Research Shop 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 P116B 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.

Policy Research Shop Support for the Policy Research Shop is provided by the Ford Foundation and by the Fund for the Improvement of Postsecondary Education, U.S. Department of Education. Policy Research Shop 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 P116B 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.

Policy Research Shop Support for the Policy Research Shop is provided by the Ford Foundation and by the Fund for the Improvement of Postsecondary Education, U.S. Department of Education. Policy Research Shop Cost of Living Adjustment (COLA) Designs for New Hampshire Presented to: The New Hampshire House Special Committee on Public Employee Pensions Reform February 10 th, 2012 The contents of this report were developed under grant P116B 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.

Policy Research Shop 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

Policy Research Shop Other States Changes 17 states in the past two years All decreased future commitments

Policy Research Shop Types of COLA Designs Ad Hoc Fixed Rate Based on the Consumer Pricing Index (CPI)

Policy Research Shop Types of COLA Designs Based on Investment Earnings Based on Break-Even Contributions Based on a Reserve Account

Policy Research Shop Limiting Factors Caps Different CPIs Income Exclusions

Policy Research Shop Federal COLAs Social Security Federal Government Employees

Policy Research Shop Social Security COLA Based on CPI-W – Consumer Price Index for an Urban Wage Earner and Clerical Worker Compounds every year

Policy Research Shop 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)

Policy Research Shop Other Designs Chained CPI-U – Substitution – Usually slightly lower than CPI-W – reduces benefits CPI-E – Weighs medical expenses more heavily

Policy Research Shop Comparative Analysis - Nationwide

Policy Research Shop Comparative Analysis - Nationwide

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

Policy Research Shop Comparative Analysis – Solvent States New York Pennsylvania Delaware Note varying demographics

Policy Research Shop Cost Impacts Example - Wyoming

Policy Research Shop Policy Options ActionVariationsRelative Cost No ChangeMaintain Ad Hoc SystemSame Index to CPIMinimums and Maximums, Compounding, Income Caps Increase Institute Fixed RateCompoundingIncrease Turn Over to Actuarial Determinations Investment Returns, SolvencyVaries

Policy Research Shop Conclusion Thank you for listening! Questions?