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Consultants present pension COLA scenarios; applying full CPI widely would add hundreds of millions to liabilities
Summary
Consultants told the committee that applying Division A COLA to Division B would raise unfunded accrued liability by about $392.7 million and increase employer contributions by roughly $51.4 million in year one; changing to compound COLAs for all would add roughly $61 million in liability and about $7.4 million in first-year contributions. The committee deferred further action pending additional scenario analysis.
Kevin Sullivan, the committee’s consultant on pension valuation, reviewed how current COLA rules differ between Division A (full CPI, up to 5%) and Division B (80% of CPI above 1%, up to 4%) and presented modeled impacts of two possible changes. Sullivan said applying Division A’s full CPI approach to Division B would increase the plan’s unfunded accrued liability by about $392.7 million and raise the first-year employer contribution by about $51.4 million; making COLAs compound for all participants would add about $61 million in liability and roughly $7.4 million to the first-year contribution.
Committee members asked about peer practices, funded-ratio thresholds and alternatives that would limit impacts on the funded ratio and employer contribution rate. Sullivan noted Metro’s funded ratio is currently about 94% and that applying Division A to all would lower the funded ratio to approximately 86.8% and increase the employer contribution rate to about 18.3% of payroll. Several members asked the consultant to run options that would show what could be purchased while keeping the funded ratio above specified targets; the committee then voted to defer decisions so consultants can provide those scenario analyses.
