COST OF LIVING ADJUSTMENTS
JUNE 4, 2004

Many of you have been inquiring about if or when a cost of living adjustment (COLA) will or can be granted. Since 1987, the Board of Trustees of the Municipal Employees' Retirement System have granted COLA's in 12 of 16 years. An impressive record to say the least. However, the ability of the Board of Trustees to grant cost of living increases to retirees is constrained by two sections of the law which govern the Municipal Employees' Retirement System. In order for the Board to grant cost of living increases, the system must have an average investment return in excess of 8% over a three year rolling period. Both Plan A and B last met this criteria in fiscal 2000 and a COLA was paid in 2001. Since that date, investment returns have been below the required benchmark. Looking forward, it is unlikely that any COLA will be permitted in the next fiscal year since difficult financial markets and therefore, low investment returns over the last two years are included in the calculations of the investment rate of return for 2004.

In addition to the requirement for investment returns to exceed the valuation interest rate of 8%, the system also must meet certain funding targets as set forth in state law. Currently, Plan A is below the required ratio of assets to liabilities given in the statutes. Plan B is slightly above the required ratio. Improving financial markets and investment returns will increase these ratios over time. Also, legislation has been filed in the current session which would decrease the possibility that the funded ratio would prevent the Board from granting a COLA. However, notwithstanding changes to this section of the law, the system will still be required to earn above the 8% valuation rate over three years to fund future COLA's.

If you have any questions about your benefit or COLA's, please give us a call at 225-925-4810, and our staff will be happy to visit with you.