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
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 |
COLA |
COLA/C |
PPA/OR |
PPA/C |
PP/CPI |
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
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 |
|
|
|
|
|
|
|
2004 |
PAs. |
COLA |
COLAs |
Current |
|
Last adj. |
|
|
|
|
|
|
|
|
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 |
|
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