Thursday, April 23, 2020

Your Pension in the age of Corona

Unemployment
Everyone is experiencing the short term effects of the Corona virus. 22 million Americans have been laid off and our economy appears to be in a free fall.

Eventually most jobs (we hope) will be back, some will be lost for good. Where does Government get it's money? Taxes paid by business and employees. Even when the jobs come back the tax revenue to Government will be low and the cost of the epidemic high for years.

Where does our Pension get it's money?  Our pension is funded by employee contributions, employer contributions, and the performance of the stock market, where our money is invested. The other 2% comes from the General Fund. (The PERA Correctional Pension was funded at 98%. I have no idea what it will look like this year.)

The annual Cost of Living Adjustment (COLA) of our Correctional Pension is tied to two things. The amount Social Security pays out as their COLA and the overall financing of our Pension, most of which is tied to the Stock Market.

Currently we will receive up to 100% of the Social Security COLA capped at 2.5%, as long as our pension's funding is over 85% a year. If it falls to 80% funding for 1 year, or 85% funding for 2 years our COLA permanently drops to 1.5% max.

Our pension is based on is a 7.5% return on investment. 

The good news is mechanisms are in place to protect our fund. The bad news is our COLA may not keep up with inflation in years to come if the economy doesn't right itself soon enough.

I will keep you posted.


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