How inflation erodes the value of public employee pensions
A Dignified Retirement for Teachers
The pensions that Massachusetts public sector employees receive lose much of their value over time. Under existing law, a $50,000 pension earned by a retired public school teacher, for example, will lose 20 percent of its buying power over ten years. This takes place because pensions are poorly adjusted for inflation.
To understand how inflation erodes the value of public employee pensions, read the MTA's analysis of the current system of pension cost-of-living adjustments for the Massachusetts Teachers’ Retirement System.
Findings include:
- Teachers and other public sector employees do not receive Social Security benefits through their employment and rely on their state pension to live in retirement. Cost of Living Adjustments for retirees are, under current state law, only applied to $13,000 of the pension benefit (the COLA base). This means that inflation erodes the value of the pension over time. For example, a 3 percent adjustment on $13,000 of a pension means roughly a .75 percent adjustment to an entire $50,000 pension.
- This has a real-world impact on the quality of life for retirees. As this report shows, a retiree who has earned a pension of $50,000 can see the value of that pension erode by 20 percent or more over 10 years under the current COLA system.
- The Commonwealth once protected the hard-earned pensions of retired teachers, but it has allowed that benefit to erode considerably over time. In 1971, the COLA base was 68 percent of the average teacher salary. In 1998, the COLA base was 28 percent of the average teacher salary. In 2022, it was down to only 15 percent.
For more about the MTA’s legislative priorities, including the dignified retirement bill, please visit massteacher.org/legislation.