On Nov. 16, Gov. Charlie Baker signed a law that adds an important municipal acceptance step for a one-time, above-the-cap increase in public pension cost-of-living adjustments in fiscal 2023.

When he signed the fiscal 2023 state budget in July, Baker offered several amendments and vetoes, one of which addressed Section 134, an outside section that would allow local and county retirement boards that have accepted Section 103 of Chapter 32 to award cost-of-living adjustments of up to 5%, exceeding the cap of 3%.

The governor’s amendment, recently affirmed by the House and Senate, addresses two primary concerns that had been raised by the MMA.

First, the new law, Chapter 269 of the Acts of 2022, adds language to ensure that municipalities are given appropriate authority to accept or reject the COLA decision made by retirement boards. Under the Section 134 of the budget passed by the Legislature, the COLA decision would have been made solely by a retirement board, despite the fact that the cost would be borne by the participating municipalities.

Second, the new law clarifies that an increase in the range of 3% to 5% would apply only on the approved base, not the entire pension.

Despite these changes, adoption of a higher COLA, even if limited to one year, could increase pension obligations for participating communities for 15 to 20 years, likely requiring increased annual appropriations. This could be particularly challenging for fiscal 2023, since cities and towns have already approved budgets for the year and have pension funding schedules in place that likely do not contemplate a COLA above 3%.

To adopt a COLA in the range of 3% to 5% under the new law, a retirement system would need a majority vote and local acceptance, as defined by a municipality’s form of government and the structure of the retirement system.

In cities, approval requires an affirmative vote by the city council upon recommendation by the mayor, or upon recommendation by the city manager in cities with Plan D or Plan E charters.

In towns, approval requires an affirmative vote by the chief executive (usually the select board).

In districts or other political subdivisions, approval requires an affirmative vote of the governing board, commission or committee.

In regional systems, two-thirds of the cities and towns within the system must approve the increase as outlined above, based on their form of government.

In counties, local acceptance includes both approval from county commissioners as well as two-thirds of municipalities within the county approving the increase.

The law is effective as of July 1, 2022.

This new option for local and county retirement boards follows a similar provision in the state budget to increase the COLA by 5% for retirees in the state pension system. Previously, the Social Security Administration announced a 5.9% COLA for 2022 Social Security and Supplemental Security Income (SSI); the Social Security COLA is set for 8.7% in 2023, its highest increase in 41 years.

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