Thirst for COLA Returns

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COLA – cost of living adjustments – were on everyone’s mind in the 1970s and early 1980s when inflation crushed purchasing power and left people worse of at the end of the year than they were at the start.

One of the biggest changes in that era was that the annual social security increase, which had always been determined by legislators, went on autopilot (itself an inflationary practice) providing annual COLAs based on the Consumer Price Index (CPI). The COLA reached a whopping 14 percent in 1980 before Treasury Secretary Paul Volcker implemented draconian interest rate policies that stopped inflation in its tracks, ushering in period of comparatively stable prices lasting almost 40 year.

Today, the nation and the world are embarked on another inflation adventure that is again leaving wage earners and those depending on pensions or government benefits in a terrifying bind, as purchasing power erodes from week to week while incomes stagnate.
That’s why COLA is back in a big way.

A recent Charles River Pollution Control District meeting dwelt at length on how to provide employees with increases to at least partially match the rising costs – yet with decision makers also concerned about how to pay for those increases.

The same conversation is happening in every municipality and in many private sector entities, too.

And, according to Mass Retirees, an organization for public sector employees, there’s a scramble on to protect everyone interest. For instance, an article on that group’s web site, noted that COLAs in many retirement systems are now capped at 3 percent. Higher COLAs require legislative authorization. And Mass Retirees is fighting for that.

As far as social security, the most recent increase in January was 5.9 percent but there is speculation that the next increase could reach 9 percent.

In short, the floodgates have opened and organizations need to keep up to retain employees or, take the risky path of belt-tightening.

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