Indexing

Replace guaranteed indexing with conditional indexing for future pensions 

Under the current Plan, pensions paid to retirees rise automatically in step with annual increases in the Consumer Price Index (CPI) – a standard measure used to determine the amount that a typical consumer pays for a basket of retail goods and services. This is called “guaranteed” inflation indexing.
 
To help improve the Plan’s sustainability substantially, the SC Board is exploring the possibility of introducing “conditional indexing.” Unlike “de-indexing,” conditional indexing provides annual pension increases when the Plan is financially healthy. If the Plan gets into financial trouble, indexing can be reduced (or suspended) on a temporary basis. 

Current

  • Guaranteed 
  • 100% of CPI, to a maximum of 6% annually
  • Includes a carry-forward if the CPI exceeds 6% in a given year

Proposed

For service before the effective date:
  • 100% of CPI, to a maximum of 6% annually, including carry-forward
PLUS
For service after the effective date, based on the Plan’s financial health (funded status):
  • Up to 100% of CPI, to a maximum of 6% annually
  • Annual adjustments may range from 0% to 100% of CPI; opportunities for one-time “bumps” to help restore benefits to where they would have been had indexing not been suspended in the past  

Rationale

Conditional indexing will be provided based on the financial health of the Plan. This essential safety valve will help to ensure more predictable (and stable) contribution levels over time. Just as important, it will help the Plan to better absorb future financial shocks that would otherwise prompt automatic benefit cuts.
 
It’s important to note that the change would have no impact on current retirees or on service up to the effective date of the change (e.g., January 1, 2021). In no case will pensions in pay be reduced from one year to the next.

Next: Integrating the pension formula with the new “Year’s Additional Maximum Pensionable Earnings” (YAMPE)