The Bottom Line is: An adjusted pension may be worth as little as

54.5 % of its original 1974 buying power. What is yours worth?

 

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Introduction: To determine whether or not a Pension Plan is keeping up with inflation, one must adopt a model on which to base the comparisons. One model frequently used is the following:

1.     The initial monthly pension payment (P) is a fixed multiplier (M) times the average of the last several months wages (W) times the number of years of total service (Y), or symbolically,

P = M * W * Y. (The DOE/OR plan uses M=0.14 and the monthly base wage averaged for the last 5 years.)

This assumes that the final wages were equitable and that the multiplier converts the monthly wage to an equitable retirement payment taking into account social security payments and other generally available retirement income sources other than personal savings, annuities and investments. There is no real evidence to support this supposition. This paper does not address this aspect of the problem. However, a recent CORRE analysis (Slide 19) showed Oak Ridge to be the lowest of the DOE nuclear installation's multipliers.

2.     Inflation in the cost of living is offset by (usually annual) cost of living adjustments similar to the COLAs that are applied yearly to the Social Security payments. This assumes that equitable measures of the cost of living are available and are used; the Bureau of Labor's Consumer Price Index – All Urban Consumers (CPI-U) or a related index is usually used. The percent CPI annual adjustment (C) is usually (but not always as is the DOE/OR case) applied yearly to correspond to the new CPI-U, or symbolically,

                  Pn = (1+Cn/100) *Pn-1, where n signifies the n-th year and n-1 its previous year.

3.     One of the simplest methods of comparing the increase in the cost of living index (CPI), the Social Security cost of living adjustments COLAs) and the DOE/OR benefit plan increases is to convert the basic data into the compounded values to give a comparison of the current value of a pension plan dollar and the cumulative cost of living and the cumulative Social Security COLAs. This measures only the adjustment plan for inflation but not the equity of the original wage multiplier. A plan is deemed equitable if its adjustments for inflation are comparable to the increase in the CPI and to the COLAs used by the SSA.

The following table gives the basic financial data.

Sources of Data:

CPI = Consumers Price Index, All Urban Consumers 1982-84 =100 – http://data.bls.gov/data/ (Select data)

COLA = Cost of Living Adjustments - http://www.ssa.gov/cola/automatic-cola.htm

PPA = ORR Pension Plan Adjustments – For AAB from Benefits Plan Administrators.

The author apologizes for the use of personal pension data for the adjustments to the DOE/OR Pension Plans but the Benefit Plans personnel opted not to supply the data averaged over all workers but only the adjustment that applied to me. Interestingly enough, the Pension Benefits would have appeared more equitable using the requested data. I would have preferred to make the argument as unbiased as possible but I was left no choice.

 

Related Page: Advice to a Young Man on Choosing an Employer


DOE/OR Pension Plan Comparisons

The following table shows, for the years 1985 to 2005, the comparisons of the increasing Consumer Price Index, the Cost of Living Adjustments of Social Security and the Oak Ridge Pension Plan: The final line (2005) is the current value of an original pension for a 1985 retirement (70.7 %).

Year

CPI/C

%

CPI/C
 Adj%

COLA
%

COLA/C
%

PPA/OR
 %

PPA/C
%

PP/CPI
 Adj %

Comment

1985

107.6

100.0

3.1

100.0

0.00

100.00

100.0

Base Year

1986

109.6

101.9

1.3

103.1

0.00

100.00

98.2

 

1987

113.6

105.6

4.2

104.4

0.00

100.00

94.7

Limited Adjustment

1988

118.3

109.9

4.0

108.8

0.00

100.00

91.0

 

1989

124.0

115.2

4.7

113.2

0.00

100.00

86.8

 

1990

130.7

121.5

5.4

118.5

0.00

100.00

82.3

 

1991

136.2

126.6

3.7

124.9

3.74

103.74

82.0

General Adjustment

1992

140.3

130.4

3.0

129.5

0.00

103.74

79.6

 

1993

144.5

134.3

2.6

133.4

0.00

103.74

77.3

 

1994

148.2

137.7

2.8

136.9

0.00

103.74

75.3

 

1995

152.4

141.6

2.6

140.7

0.00

103.74

73.2

 

1996

156.9

145.8

2.9

144.4

0.00

103.74

71.1

 

1997

160.5

149.2

2.1

148.6

0.00

103.74

69.6

 

1998

163.0

151.5

1.3

151.7

0.00

103.74

68.5

 

1999

166.6

154.8

2.5

153.6

0.00

103.74

67.0

 

2000

172.2

160.0

3.5

157.5

0.00

103.74

64.8

 

2001

177.1

164.6

2.6

163.0

23.00

127.60

77.5

General Adjustment

2002

179.9

167.2

1.4

167.2

0.00

127.60

76.3

 

2003

184.0

171.0

2.1

169.6

0.00

127.60

74.6

 

2004

188.9

175.6

2.7

173.1

0.00

127.60

72.7

Limited Adjustment

2005

 

180.6

 

177.8

 

127.60

70.7

CPI Estimated

 

CPI-U/C =Compounded Consumer Price Index - All Urban Consumers (Bureau of Labor Statistics)

CPI/C-Adj = CPI-U/C Adjusted to 1985

COLA = Cost of Living Adjustments (Social Security Agency)

PPA/OR = Pension Plan Adjustments (Coalition of Oak Ridge Retired Employees)

/C = Cumulative, compounded

 

Relative Current Pension Value by Retirement Year

 

The following presents the basic data (except CAPS and FLOORS) for all Oak Ridge Pension Adjustments [1](PAs) since 7/1/1969 as well as the Social Security Agency Cost of Living Adjustments (COLAs) for since 1985. It also shows the compounded PAs and COLAs by year. The relative Current Pension Value is calculated by Retirement Year (First Column) and shown bolded red in the last column. In other words, this column gives by retirement year the buying power of your current pension relative to your initial pension in the year of retirement.

 

Example; if you retired in 1985your pension dollar (corrected for pension adjustments sand cost of living) is now worth only $0.756. You can look at the worth of your pension.

Effective

 

 

 

 

7/01/80

7/1/87

1/1/92

2004

PAs.

COLA

COLAs

Current

Last adj.

7/1/69

1/1/73

1/1/75

01/01/76

7/01/80

1/1/82

1/1/89

 

Comp'd

Annual

Comp'd

Pension

Adjust. #

1

2

3

4

5

6

7

9

 

 

byYear

Value

RetYear.

 

%

%

%

%

%

%

 

(ratio)

(ratio)

(ratio)

1969

0.0

5.0

7.0

12.00

12.00

12.0

18.0

 

2.291

 

 

 

1970

 

5.0

6.0

12.00

12.00

12.0

18.0

 

2.270

 

 

 

1971

 

5.0

5.0

12.00

12.00

12.0

18.0

 

2.248

 

 

 

1972

 

5.0

4.0

12.00

12.00

12.0

18.0

 

2.227

 

 

 

1973

 

 

 

12.00

12.00

12.0

18.0

 

2.039

 

 

 

1974

 

 

 

10.92

12.00

12.0

18.0

 

2.019

 

1.000

0.545

1975

 

 

 

8.92

12.00

12.0

18.0

 

1.983

8.0

1.080

0.578

1976

 

 

 

 

10.25

10.0

18.0

 

1.760

6.4

1.149

0.546

1977

 

 

 

 

7.92

8.0

18.0

 

1.692

5.9

1.217

0.556

1978

 

 

 

 

5.50

6.0

18.0

 

1.623

6.5

1.296

0.568

1979

 

 

 

 

3.08

5.0

18.0

 

1.571

9.9

1.424

0.604

1980

 

 

 

 

0.67

4.0

15.0

 

1.481

14.3

1.628

0.651

1981

 

 

 

 

 

2.5

12.5

 

1.418

11.2

1.810

0.693

1982

 

 

 

 

 

 

11.0

 

1.365

7.4

1.944

0.717

1983

 

 

 

 

 

 

9.0

 

1.341

3.5

2.012

0.729

1984

 

 

 

 

 

 

7.0

 

1.316

3.5

2.083

0.740

1985

 

 

 

 

 

 

6.0

 

1.304

3.1

2.147

0.756

1986

 

 

 

 

 

 

5.0

 

1.292

1.3

2.175

0.759

1987

 

 

 

 

 

 

4.0

 

1.279

4.2

2.267

0.783

1988

 

 

 

 

 

 

3.0

 

1.267

4.0

2.357

0.806

1989

 

 

 

 

 

 

 

 

1.200

4.7

2.468

0.800

1990

 

 

 

 

 

 

 

 

1.170

5.4

2.601

0.822

1991

 

 

 

 

 

 

 

 

1.130

3.7

2.698

0.823

1992

 

 

 

 

 

 

 

 

1.120

3.0

2.779

0.840

1993

 

 

 

 

 

 

 

 

1.100

2.6

2.851

0.847

1994

 

 

 

 

 

 

 

 

1.080

2.8

2.931

0.855

1995

 

 

 

 

 

 

 

 

1.070

2.6

3.007

0.869

1996

 

 

 

 

 

 

 

 

1.050

2.9

3.094

0.877

1997

 

 

 

 

 

 

 

 

1.040

2.1

3.159

0.887

1998

 

 

 

 

 

 

 

 

1.040

1.3

3.200

0.899

1999

 

 

 

 

 

 

 

 

1.000

2.5

3.280

0.886

2000

 

 

 

 

 

 

 

 

1.000

3.5

3.395

0.917

2001

 

 

 

 

 

 

 

 

1.000

2.6

3.483

0.941

2002

 

 

 

 

 

 

 

 

1.000

1.4

3.532

0.954

2003

 

 

 

 

 

 

 

 

1.000

2.1

3.606

0.974

2004

 

 

 

 

 

 

 

 

1.000

2.7

3.703

1.000

2005

 

 

 

 

 

 

 

 

1.000

 

 

 


Notes

1) Adjustment (1) for 1969 may be 4.0 % (TCT)

2) Adjustments (2) for 1969-72 may be 4.0% (TCT)

3) Adjustnents (9) for 2004 apply to only the lowest pensions (< $600)

4) Adjustments before 1969 are not available.

5) This data from TRL 12/18/02 is in substantive agreement with data from TCT ~2002

5) This analysis does not account for pension-dependent CAPS or FLOORS on adjustments.

    The current pension level predicted is too high for large pensions and too small for small pensions.

    However, the substantive conclusions that pensions have been devalued are valid

 

 

 

 

Comments on Pension Plan Equity:

 

Referring to the first table for a retirement in 1985:

 

1.     Over the time span from 1985 to 2005, the compounded Consumers Price Index (CPI-U) has increased from a relative value of 100 to 190.5 as reflected by the increased cost of nearly everything one must buy. Medical care costs found in Social Security and the pension plan have increased dramatically.

2.      The COLAs (Social Security Adjustments) have almost kept pace with the CPI-U (Consumer's Price Index - Urban) to within 5.8 % increasing from 100 to 190.5. The CPI-U inflates slower than the suggested CPI-E (CPI for the elderly) which (if used to determine COLAs) would give lower current values for the pensions.

3.     In the same period, the PPAs have NOT kept up with the cost of living; the adjustments have been infrequent and small. The Pension Benefits have increased from $100 to only $127.60. Or stated another way $100 of 1983 pension is now worth only $70.7 when adjusted for inflation.

4.     The logic of why one branch of the federal government (SSA) sees it equitable to adjust my Social Security benefits every year almost keeping up with inflation and another branch (DOE) sees fit to depreciate my Pension Benefits with only small increases, escapes me.

5.     The practice of adjusting federal pensions each year by the inflation rate and having only occasional adjustments of the pensions of retired employees of federal prime contractor's smacks of elitism not appropriate to our democracy.

6.     While the above inequities continue, the recent DOE attempt to expend the surplus Benefit Plan funds for capital or operational expenses only adds insult to injury.

7.     The foregoing comments are applicable to retirement in 1985 but an examination of the second table above shows that the inequity exists for all retirement years and is worse the longer you have been retired.

8.     The Pension Plan's corrections for inflation are NOT equitable. An adjusted pension may be worth as little as 54.5 % of its original (1974) buying power.

9.     The above indignities make the loud praises of the Cold War warriors by the current administration ring very hollow.

The current workers have future interest and thus a current interest in this matter. While the retired employees may not have much direct programmatic clout, indirectly their income has a large impact on the current economy. In addition, they have political clout in that they can affect the balance of power in elections. The advice of Dylan Thomas to elders was: "Go not gentle into that good night" and is still good advice as was the advice of a recent CORRE speaker: "VOTE! Vote for those who help and vote against those who do not help." I applaud and endorse the efforts of the PACE, the ATLC and the CORRE who have spoken so clearly and forcibly of this topic.

The least individuals can do is to write letters to appropriate politicians.

The necessary addresses are posted on: http://www.corre.info/ArchivesBefore2006/Fed_Govt_Contacts.htm

 



[1] The author wishes to thank Troy Trotter and TRL for copies of the Pension Plan Adjustments