Allows the FPPA Board greater flexibility in the type of Cost of Living Adjustments it can grant

What Does This Bill Do?

Simply put, this proposed change to Colorado Revised Statute allows the FPPA Board to award non- compounding, or one-time payments, in addition to, or in place of, the compounding COLAs it is currently allowed to grant. Existing COLA limitations remain in place to protect Plan funding. Importantly, this proposal does not provide additional funding for COLAs such as requiring an increase to Member or Employer Contributions.

Cost of Living Adjustment Policy

Under Colorado law and the Board adopted COLA policy, COLAs are not guaranteed and are awarded on an ad hoc basis by the Board, based upon what the Plan can afford and still maintain its fully funded status. Automatic or guaranteed COLAs were not part of the defined benefit plan when it was created by the legislature. Ad Hoc COLAs were always intended to be used as a tool to maintain funding status of the plan.

FPPA’s Board adopted its existing COLA policy, in part, to protect the benefits of future generations of Colorado first responders. One of the Board’s primary responsibilities is to ensure that FPPA can pay all the benefits promised to current and future active Members as well as today’s retirees. In addition to current retirees, we need to prepare for retirees 30+ years in the future.

The policy points above do not change under the proposal.

What is the Actual Statute Change?

The table below shows the redline language and a plain-language interpretation, side by side:

What the Revised Language Says	What the Revised Language Means
31-31.5-410. Cost of living adjustments- definitions.
(1) Cost of living adjustments The benefits payable under the lifetime benefit components of the plan, if any, may be paid redetermined effective October 1 each year. To be eligible to receive a cost of living adjustment for redetermination, the benefits must have been paid for at least twelve calendar months prior to the effective date of the cost of living adjustment. Subject to the limits set forth in subsection (2) below, the board has the authority to determine the form in which the cost of living adjustment may be paid. This includes the frequency of payment, whether the payment is compounded or non- compounded, or any other form in which to pay a cost of living adjustment. redetermination	COLAs are paid to eligible Members annually, effective October 1st each year. Within certain limits, the Board can decide whether the COLA is compounded (sets a new baseline benefit going forward) or non- compounded (simple or one-time payment).
(2) (a) Any cost of living adjustment redetermination of benefits made pursuant to subsection (1) of this section shall be determined by the board in its discretion as a fiduciary of the statewide retirement plan after considering the funding level of the lifetime benefit components, the cost of the redetermination adjustment, the components’ ability to fund future benefits, and any other factors that the board deems appropriate.	The Board is required to protect the Plan’s long-term financial interest. The Board cannot make COLA decisions that put long-term Plan funding at risk.
The cost of living adjustment redetermined benefits shall not exceed the greater of: One hundred three percent of the benefits paid for the prior twelve-month period; or The benefits paid during the prior twelve-month period multiplied by a fraction using the consumer price index for the immediately preceding calendar year as the numerator and the consumer price index for the calendar year prior to the immediately preceding calendar year as the denominator. (b) As used in this section, “consumer price index” means the national consumer price index for urban wage earners and clerical workers prepared by the United States department of labor.	With that requirement in mind, the maximum COLA the Board can pay is either: A 3% benefit increase, or Equal to the Consumer Price Index (CPI-W) for the previous year, whichever is greater and does not jeopardize the long-term funded status of the Plan.

Financial Impacts of Compounding vs. Non-Compounding COLAs

When considering COLAs, FPPA’s Board calculates adjustments based upon the COLA’s financial impact to the Plan over several decades. By definition, when the Board grants a compounding COLA, it establishes a new baseline benefit for the recipient, which becomes the new basis for future COLAs. This makes compounding COLAs very expensive. By comparison, a non-compounding COLA, or a one-time payment, does not create a new baseline benefit.

THE BOTTOM LINE: FPPA’s Board is currently only allowed to grant compounding COLAs. This proposal gives the FPPA Board more flexibility in how it grants COLAs—specifically allowing for one-time or non-compounding payments—while maintaining existing guardrails to protect the Plan.