The last retiree Cost of Living Adjustment (COLA), or an ongoing retirement payment increase of 1.5% to account for cost-of-living changes, took effect in July 2011.
Although the COLA paid to CERS, KERS, and SPRS retirees typically comes from trust fund dollars and not the General Fund, the Kentucky General Assembly (and not the KPPA Board or the Governor) actually holds the authority to grant COLAs under Kentucky Revised Statute (KRS) 61.691 and
KRS 78.5518.
Historically, COLAs for retirees were paid from trust funds on a pay-as-you-go basis, meaning that the expense was recognized as it occurred and was not pre-funded. The cost for each annual COLA was recognized in the employer contribution rate after the COLA was 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.
Granting COLAs
During the 2013 Regular Session, the General Assembly changed the law for granting COLAs. The 2013 law change states that COLAs will only be granted in the future if:
Scenario 1: The respective boards of Trustees determine 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
Scenario 2: The General Assembly fully pre-funds the COLA or directs the payment of funds in the year the COLA is provided.
Please note that it is possible that retired members of one system may receive a COLA while retired members of another system would not, depending on the action of the General Assembly.
Funding Status
The first scenario for granting retiree COLAs does not currently apply to any system. While the funding ratio of all funds continues to improve, our actuaries project that the pension funds will not reach a funded status of 100% until approximately 2049. Please refer to our most recent
Summary Annual Financial Report for additional information.
CERS COLA Process
During the 2021 Regular Session, House Bill 9 was passed to create separate benefit statutes for CERS apart from KERS and SPRS as provided in the intent language of House Bill 484, which was passed during the 2020 Regular Session. HB 484 had previously separated the governance of CERS from KERS and SPRS. Following the passage of HB 9, KRS 78.5518 was enacted.This law specifies that the General Assembly can authorize a COLA for CERS retired members if the funding ratio for the CERS Nonhazardous or Hazardous pension funds is greater than 100%, in which case the COLA would be paid for by the surplus amount in the pension fund. Or, the General Assembly can direct payment of employer contributions to fully pre-fund the COLA in the year the increase is provided.
This clarifying language was necessary because the Commonwealth is the employer for KERS and SPRS; however, each individual participating employer is considered the employer for CERS retirees. Therefore, while the General Assembly has the authority to grant COLAs for retirees, the Commonwealth does not have the statutory authority to allocate state money to pay for a CERS COLA.
KERS and SPRS COLA Process
For KERS and SPRS retirees,
KRS 61.691 specifies that the General Assembly can appropriate sufficient funds or direct payment of funds to fully pre-fund the COLA for KERS or SPRS members in the year the increase is provided, or the General Assembly can authorize a COLA for KERS or SPRS retired members if the funding ratio of KERS or SPRS is greater than 100%, in which case the COLA would be paid for by the surplus amount in the relevant pension fund.
COLA Legislation
Because COLAs can only be authorized by legislation, retired members may want to
contact their state legislator to discuss the possibility of a COLA being authorized during a legislative session. KPPA tracks retirement-related bills during each session of the General Assembly. Members are encouraged to check our
Legislative Updates page and follow us on social media for the latest retirement news.