Will inflation push Pa. legislature to give cost-of-living raises to state and school retirees?

With inflation topping 8% this year for the first time since 1981, Pennsylvania officials are mulling what to do about state and public school retirees’ demands for the first pension cost-of-living adjustments (COLA) since 2004.

In the state Senate, two Democrats, Katie Muth and John Kane, who represent districts in Philadelphia’s western suburbs, said Monday that they planned to introduce legislation providing a cost-of-living adjustment for beneficiaries of both the Pennsylvania Public School Employees Retirement System (PSERS) and the Pennsylvania State Employees Retirement System (SERS).

“Inflation is very harmful to fixed incomes,” and with prices so much higher in an election year this year, “the chance of passing a COLA really should be better” than at any time since the last increase was passed 20 years ago, the Pennsylvania Association of School Retirees told members in a Monday note praising the senators’ proposal.

But it will be “a challenge” to enact a raise, the group added, noting that the legislative session has about 10 days left and that a proposal would need the support of both parties and Gov. Tom Wolf. A proposal earlier this year, to boost pensions for 74,000 older retirees, mostly in their 80s and 90s, by 4.5% to 15%, would have cost taxpayers about $63 million a year over the next 10 years, on top of the $6 billion that state and local taxpayers are already paying to fund the pensions, according to a state budget analysis. That proposal has not advanced.

Left unstated by the retirees’ group, but all too familiar to state budget officials: After years of underfunding and disappointing investment returns, both plans have deficits running into the tens of billions of dollars, which lawmakers have been reluctant to increase by boosting retiree payouts.

Combined, the systems pay retirement and survivor pensions to more than 370,000 Pennsylvanians. Payouts average a little more than $2,000 a month but vary widely; career state worker retirees collect an average of about $31,000 a year, and teachers with at least 20 years’ service collect about $33,000, while hundreds of retired senior school staff collect more than $100,000.

But thousands who retired before 2001, when pension rates were lower, collect far less.

The senators circulated co-sponsorship memos Monday, showing that they plan to introduce two separate proposals that would give beneficiaries of both PSERS and SERS their first COLA since the last ones were approved in 2002. The memos note that inflation has boosted consumer prices more than 50% from 2002 to 2022.

“The number of people who that have emailed my office since introducing the memos is astounding, all in support of it,” Muth said Monday, several hours after announcing the proposal. She joined the PSERS board last year and has often clashed with board leadership, which Muth has accused of excessive secrecy and an overly complex, expensive investment policy.

Gov. Tom Ridge signed legislation to increase state and school pensions and reduce eligibility in 2001, and a scheduled increase took place two years later. Pensions are based on years of service and highest annual pay before retirement. But the plans in the 10 years after that law passed slipped from well-funded to badly underfunded, as investments and “employer contributions” from taxpayers failed to keep pace with pension payouts. The General Assembly has improved no new increases since that time.

“Especially pre-2001 retirees,” who didn’t get the Ridge increase, “deserve a COLA,” said Caroline Fedena, a retired school counselor at Sun Valley High School in Aston, noting that she is among those who retired just before pensions were raised.

“Although payments to the fund have increased due to higher salaries and a higher percentage of salaries paid to the fund, plus much higher school district contributions, the legislature has not seen fit to add even one COLA during that time,” said Rick Greenstein, who taught in Philadelphia schools from 1966 to 1996.

“There has been no COLA for 18 years, and yet the state plan, SERS, has managed with smoke and mirrors to continue paying higher pensions” to recent retirees, said Leo Burke Jr., a retired state social worker from Philadelphia and a past officer of the Pennsylvania Association of Retired State Employees.

Burke said Tuesday that retirees pre-2001 “are disadvantaged by 25%” because their pensions were calculated on a lower basis and that union leaders “betrayed” them in a deal that also boosted pensions for state lawmakers.

Christopher Santa Maria, the Lower Merion School District history teacher who chairs the PSERS board, urged fellow trustees at the board’s meeting last December to support research into an increase, at least to the lowest-paid retirees.

“My heart goes particularly out to the annuitants who retired before 2001,” Santa Maria said at that time. Those retirees are in their mid-70s and older. He urged that the board “do a study on what the actuarial and actual cost would be“ for increasing pay to the “most vulnerable.”

But Stacey Connors, speaking on behalf of Sen. Patrick M. Browne, another PSERS trustee, said at that time that legislators lacked “an appetite to make any legislative changes.” (Browne, who represents the Lehigh Valley, was defeated in last spring’s Republican primary by a candidate who criticized Browne for working too closely with Democrats.)

In the end, Santa Maria “deferred to the General Assembly,” since some legislators have been taking up the issue, said PSERS spokeswoman Evelyn Williams. “We stand ready to assist the senators” and other state officials to review pension finances — as the agency did with previous proposals, she added.

. Pam Hile, a spokeswoman for the SERS plan, said they would look at a detailed proposal from the senators “once there is a bill” in the legislature.

The lone PSERS board seat set aside for retirees is scheduled to go vacant pending an election among retirees, after Melva S. Vogler, a former board chairman who took over the seat with the backing of the PSEA teachers’ union, retires from the board at the end of this year. Vogler is the board’s longest-serving member.