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?

NEW: Blogging Service: Click Here

Summary: To read a short version of this discussion: click here.

Or Continue Reading Here for the Full Text

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,

P_n = (1+C_n/100) *P_n-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.

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. #

byYear

Value

RetYear.

(ratio)

(ratio)

1969

0.0

5.0

7.0

12.00

12.0

18.0

2.291

1970

5.0

6.0

12.00

12.0

18.0

2.270

1971

5.0

12.00

12.0

18.0

2.248

1972

5.0

4.0

12.00<