Cost of Living Adjustments (COLAs)
The last retirement benefit raise, or Cost of Living Adjustment (COLA), provided to KRS retirees took effect in July 2011 and continued through the 2011-2012 Fiscal Year. Although the COLA paid to retirees of Kentucky Retirement Systems comes from trust fund dollars and not the General Fund, the Kentucky General Assembly (and not the KRS Board of Trustees or the Governor) actually holds the authority to grant COLAs under Kentucky Revised Statute 61.691.
In 2013 the General Assembly created a new law to govern how COLAs will be granted. Language included in Senate Bill 2 during the 2013 Regular Session says COLAs will only be granted in the future if the KRS Board determines that assets of the system are greater than 100% of the actuarial liabilities and legislation authorizes the use of surplus funds for the COLA; or the General Assembly fully prefunds the COLA or directs the payment of funds in the year the COLA is provided.
This change is consistent with a resolution adopted by the KRS Board of Trustees on November 18, 2010, which "…urged the Governor and the General Assembly to make certain that any amount of cost of living adjustment given pursuant to KRS 61.691 is fully funded, in addition to the amounts provided pursuant to KRS 61.565 (actuarially recommended employer contributions)." House Bill 303, the State Executive Branch budget bill that was passed during the 2016 Regular Session of the General Assembly (the bill that created the two-year state budget for Fiscal Years 2016-17 and 2017-18 that is currently in effect) did not include a COLA for retirees.
After careful consideration of the funding status of the Systems, the Board adopted this resolution in 2010 because COLAs for KRS retirees are paid from trust funds on a pay-as-you-go basis, meaning that the expense is recognized as it occurs and is not pre-funded. The costs for each annual COLA are recognized in the employer contribution rate after the COLA is granted. From 2008 through 2012, unfunded COLAs added $1.45 billion in unfunded liability to the Systems.
Click here for a History of Benefit Increases to Retirees from July 1, 1960 to Present.