April 18, 2019
Retired Maryland teachers, state and municipal employees, correctional officers and police will notice an increase to their monthly retirement benefit in July as the annual cost-of-living adjustment (COLA) takes effect.
For retirees from the Employees’ or Teachers’ Retirement System OR persons who retired on or before July 1, 2011, the COLA rate is 2.443%.
For persons who retired after July 2011 under the Employees’ or Teachers’ Pension System, Law Enforcement Officers’ Pension System, Maryland State Police Retirement System or Correctional Officers’ Retirement System, a two-part COLA applies. These retirees will receive the full COLA of 2.443% on that portion of their retirement allowance based upon service credit earned prior to July 1, 2011. For the portion of their retirement allowance based upon service earned on or after July 1, 2011, the COLA is capped at 1%.
This cap, part of pension reforms enacted by the Maryland General Assembly in 2011, applies only to that portion of the retirement allowance based upon service credit earned on or after July 1, 2011. It limits the COLA to 2.5% if the System’s investment fund meets or exceeds its assumed rate of return during the preceding year. The cap is 1% if this target is not met. The System’s investment return of -1.63% for calendar year 2018 did not meet the assumed rate on December 31, 2018 of 7.45%.
The COLA does not apply to legislative and judicial retirees. Retirees from these systems receive adjustments based on the increases received by active legislators and judges.
Eligible retirees’ increased monthly benefit will be shown on the Automatic Deposit Advice or Check Statement mailed to the homes of all retirees on July 31.
Frequently asked questions
Q. Who qualifies to receive the COLA this July?
A. A retiree who has completed at least one year of retirement as of July 1, 2019 qualifies for this year’s COLA. Those who retired after July 2018 (August 2018 or later) will be eligible to receive their first COLA increase in July 2020.
Q. How is the annual COLA increase applied?
A. A retiree’s benefit system determines how the annual increase is calculated for his or her payment. Eligible retirees receive either a compound COLA or a simple COLA. For retirees receiving the compound COLA, the COLA increase is based on their current allowance, including all prior COLAs. Under the simple COLA, the increase is based only on the retiree’s initial retirement allowance.
The compound COLA applies for eligible retirees of all systems except the Employees’ Non-Contributory Pension System and the Local Fire and Police System. (For retirees who transferred into the Local Fire and Police System from the Employees’ Retirement System, the compound rate applies.)
Q. How is the rate determined?
A. The COLA rate is calculated using a formula provided in state law. The formula compares the value of the Consumer Price Index for the most recent calendar year to the CPI value for the prior calendar year. The percentage difference between these two values is the COLA rate.
This rate is then compared to the maximum COLA rate allowed by state law for the various Maryland retirement plans to determine the correct adjustment to each individual retirement allowance.