FPPA Members, Employers, and other stakeholders,
I wanted to take this opportunity to provide detail and context to one issue that’s top of mind for many of our active and retired Members: FPPA’s new Cost of Living Adjustment (COLA) policy, and what it means for benefit adjustments this year in the Statewide Retirement Plan. We’ve heard your frustrations on Cost of Living Adjustments in recent years, especially considering the record inflation. As we work towards meaningful COLAs, our goal is to communicate clearly and be as transparent as possible on this subject.
To that end, here are the recent actions FPPA has taken to help ease the burden of high inflation:
In the spring of 2023, a piece of FPPA-sponsored legislation was signed into law by the governor. This new legislation allows our Board to also consider non-compounding COLAs (AKA One-Time Lump Sum payments) as part of its COLA policy.
Following this legislative change, FPPA’s Board adopted a new COLA policy at its April meeting. This policy enables the Board to grant annual compounding COLAs to all Members based upon what the Plan can afford while remaining fully funded. This is unchanged from the previous policy. But, in years where the national inflation rate is higher than the compounding COLA that the Plan can afford, the new policy allows the Board to also consider a non-compounding, One-Time Lump Sum payment to help with inflation, which would be paid in addition to the compounding COLA.
The Board can now consider granting One-Time Lump Sum payments to eligible retirees under these certain conditions:
- If the compounding COLA is less than 1%, and
- The long-term investment pool (where FPPA invests Plan assets) has achieved an average return of 6.5% over the last five years
- Then, pay a one-time lump sum according to this calculation:
CPI-W inflation rate – the compounding COLA percentage
This equals the One-Time Lump Sum percentage. Then multiply that by the Member’s annual benefit to determine the One-Time Lump Sum:
One-Time Lump Sum factor percentage x Member’s annual benefit = One-Time Lump Sum amount
The good news is that for 2023, the conditions on the previous page were met, so eligible retirees in the Statewide Retirement Plan will receive both a compounding COLA and One-Time Lump Sum payment effective with their October 2023 benefit payment.
Specifically for SRP Members, here’s what that looks like: FPPA’s actuaries determined that the Plan can afford to pay eligible retirees a compounding COLA of 0.15% under the compounding portion of the policy.
Then, to calculate the non-compounding, one-time payment, subtract the 0.15% compounding COLA from the CPI-W inflation rate (8.5% for 2022), to get a lump sum payment equal to 8.35% of each retiree’s annual benefit:
8.5% CPI-W rate – 0.15% compounding COLA = 8.35%
Then multiply that by the Member’s annual benefit to create the One-Time Lump Sum:
8.35% x Member’s annual benefit = One-Time Lump Sum payment
So, in October 2023, eligible retirees will receive their current benefit with a 0.15% compounding increase, plus a One-Time-Lump Sum equal to 8.35% of their annual benefit. Then, beginning with their November check, their benefit resumes at its 2023 level, which includes the 0.15% compounding COLA, going forward.
FPPA is incredibly grateful to serve our stakeholders. It is an honor to work on your behalf, safeguarding the benefits for both our current and future Members. We hope this explanation of FPPA’s COLA policy, as well as our recent actions to reduce the sting of inflation, helps to build a better shared understanding of how FPPA operates.
If you have any questions, please do not hesitate to reach out to our staff at FPPAco.org
Kevin B. Lindahl is the Executive Director of the Fire & Police Pension Association of Colorado.