MSEP 2011 Plan Member Contribution

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Is it true you have no choice on the retirement option and the state takes out 4 percent whether you want it or not?
If you were first hired in a MOSERS covered position on or after January 1, 2011, then you are a member of the MSEP2011, and yes, you are required by law to contribute, by payroll deduction, 4% of gross pay for your retirement benefit. This contribution is made on a pre-tax basis and you will receive no less than the amount you contribute. There are three sources of income that contribute to the funding of your retirement benefit; (1) your mandatory 4% contribution, (2) your employer’s contribution (currently, 14.45% of covered payroll), and (3) MOSERS’ investment income. For more information, see our "What Plan Am I In?" section of our website where you can learn exactly which plan you are in and the benefits associated with each.

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Friday Top Five

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From PensionDialog: Negotiating Pension Agreements

The case for compromise when it comes to pension reform: "Despite what headlines or political pundits may say, in many places, there is a shared recognition of needing to be flexible, of recognizing change in the economy and marketplace, and of the importance of ensuring pensions remain a viable and sustainable retirement safety net."

From the Squared Away Blog: What’s Up With Women?

This blog is part of the Financial Security Project at Boston College. In this post, the sad fact that women - universally - continue to be less financially literate than their male counterparts, a fact that has detrimental consequences on women when it comes to planning for retirement.

And some rather negative news out of our neighbor to the east - Illinois

Standard & Poor's downgraded Illinois bonds to A from A-plus following a similar move by Moody's earlier this year.

Moody's Investor Service said "Illinois' failure to improve its sagging public retirement system during a special legislative session last week is a negative credit factor for the state." The lower a state's bond rating is, the more its borrowing costs increase.

This article harshly calls Illinois "the nation's biggest fiscal basket case," and points to Illinois' massively underfunded pension system and the legislature's inability to deal with it as a large part of the problem.

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

State and Local Government Spending on Public Employee RetirementSystems - A NASRA Issue Brief

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The National Association of State Retirement Administrators (NASRA) recently updated its issue brief called State and Local Government Spending on Public Employee Retirement Systems. It is reprinted here in its entirety with permission from the organization. Visit NASRA's website for more information.
NASRA ISSUE BRIEF: State and Local Government Spending on Public Employee Retirement Systems

Updated August 2012
As states and cities continue to address the effects of the Great Recession, the cost of pension benefits for employees of state and local government remains a key point of discussion. On a nationwide basis, pension costs for state and local governments are roughly three percent of total spending (see Figure 1). Current pension spending levels, however, vary widely and are sufficient for some entities and insufficient for others.

In the wake of the 2008-09 market decline, over 40 states and many cities have taken steps to improve the financial condition of their retirement plans and to reduce costs. Although some lawmakers have considered closing existing pension plans to new hires, most determined that this would increase—rather than reduce—costs(i), particularly in the near-term. Instead, states and cities have adjusted employee and employer contribution levels, restructured benefits, or both. Ultimately, the degree of needed change in pension plan costs will depend largely on the funding history of the plan and the type and magnitude of recent reforms.

Three Percent Nationwide
Based on the most recent information provided by the U.S. Census Bureau, approximately three percent of all state and local government spending is used to fund pension benefits for
employees of state and local government (ii). As shown in Figure 2, pension costs since 1980 have been reliably stable, declining from around four percent to nearly three percent in 2009.

Although pensions are not the state-local budget-drain that some claim they are, as shown in Table 1, spending levels for states and cities do vary from the national average: from less than one percent to more than six percent. One study estimates that total required spending on pensions could consume as much as 13 percent of one state’s budget (iii), due partly to past failures to adequately fund pension costs and assuming a five percent investment return. The chronic failure by some pension plan sponsors to pay required contributions results in greater future contributions to makeup the difference.

Most of the variation in pension spending levels is attributable to three factors: different levels of effort by states and cities to make pension contributions; differences in benefit levels; and variations in the size of unfunded pension liabilities. As a percentage of total spending, pension costs for cities are higher than states by about 50 percent. This is due in part to types of services delivered at the local level and the resulting larger share of municipal budgets that is committed to salaries. As with states, pension costs for municipalities can vary widely.

Cost and Financing Factors
Public pensions are financed through a combination of contributions from public employers (state and local agencies) and public employees, and the investment returns on those contributions (iv). Since 1982, investment earnings have accounted for approximately 60 percent of all public pension revenue; employer contributions, 28 percent; and employee contributions, 12 percent.

Employee Contributions
Because the vast majority of public employees are required to contribute toward the cost of their pension benefit—typically four to eight percent of pay—most state and local government retirement plans are mandatory savings programs. Many states have increased required employee contributions in recent years. On a national basis, in fiscal year 2009, employee contributions accounted for 31 percent of all public pension plan contributions, with employer contributions making up the remaining 69 percent.

Employer Contributions
Most public retirement systems require employers to contribute what is known as the Annual Required Contribution (ARC). The ARC includes the sum of what employers must pay to finance new benefits accrued each year, and a payment to amortize unfunded liabilities from past years, minus required employee contributions.

The ARC varies among pension plans, depending on such factors as the level of benefits, the size of the unfunded pension liability, and a plan’s actuarial methods and assumptions. Unfunded liabilities typically are financed over a number of years, similar to paying off a mortgage: just as the annual cost of paying down a 30-year mortgage will differ from a 15-year mortgage, the length of time to pay down unfunded pension liabilities also affects current plan costs. Although the long-term liability may be the same, the monthly payment will differ.

Many states have laws that require that pension plans be funded on the basis of the ARC, and some public retirement systems are authorized to require payment of the ARC. The average ARC received in recent years has been around 90 percent. Beneath this average ARC experience lies diversity: approximately 60 percent of plans in the Public Fund Survey consistently receive 90 percent, or more, of their ARC (v). This means that although a majority of plans have been receiving their required funding, many plans have not been adequately funded, which will result in higher future costs.

Social Security Coverage
Twenty-five to thirty percent of state and local governments and their employees make contributions to their retirement plan instead of to Social Security. This is the case for substantially all of the state and local government workforce in seven states, 40 percent of the nation’s public school teachers, and a vast majority of firefighters and police officers. Pension benefits—and costs—for those who do not participate in Social Security are usually
higher than for those who do participate in order to compensate for the absence of Social Security benefits. This higher cost should be considered in the context of the 12.4 percent of payroll, or an estimated $31.2 billion annually (vi), these employers and employees would otherwise be paying into Social Security.

Investments and Other Parts of the Financing Equation
The largest portion of public pension funding comes from investment earnings, which illustrates the major role this revenue source plays in determining pension costs. Other factors that affect pension costs include expectations for both wage and general inflation, rates of worker retirement and attrition, and mortality. Expectations for these and other economic and actuarial events typically are based on long time frames, such as 20 to 50 years.

Although the market decline of 2008-09 lowered public pension fund asset values, macro-economic events also affect the cost of the plan. These events include such changes as retirement rates, attrition (such as hiring freezes), and wage growth (including salary cuts/layoffs). Additionally, legislatures in over 40 states have made changes to pension benefits and/or financing, in some cases reducing plan costs and long-term obligations.

State and local government pension benefits are paid not from general operating revenues, but from trust funds to which public retirees and their employers contributed while they were working. Over $200 billion is distributed annually from these trusts to retirees and their beneficiaries, who reside in virtually every city and town in the nation. These benefits serve as a source of economic stimulus to every state and local economy (vii).

On average, public pension programs remain a small part of state and local government spending, although the costs, benefit levels, and funding levels vary widely. Changes to benefit levels and required employee contributions adopted by states and cities have also been diverse, dependent in part on such factors as the legal authority to make changes to benefits or required employee contribution rates; and the plan’s financial condition prior to the 2008-09 market decline. Generally, states and cities with a history of paying their required pension contributions are in better condition and need adjustments to benefits or financing arrangements that are less far-reaching compared to those with a history of not adequately making their contributions.

See also:
Center for Retirement Research at Boston College, “The Impact of Public Pensions on State and Local Budgets,” October 2010

National Association of State Retirement Administrators, Issue Brief: Public Pension Plan Investment Returns, October 2011

Keith Brainard, Research Director or Alex Brown, Research Associate

i Wikipension, “Costs of Switching from a DB to a DC Plan,”
ii A similar study conducted by the Center for Retirement at Boston College calculated the cost of pensions to be 3.8 percent, using a calculation that excluded capital spending
iii Center for Retirement Research at Boston College, “The Impact of Public Pensions on State & Local Budgets,” supra
iv U.S. Census Bureau, State and local government retirement system sources of revenue
v Public Fund Survey
vi Author’s calculation based on 30 percent of state and local government employees not participating in Social Security
vii Pensionomics: Measuring the Economic Impact of State and Local Pension Plans, National Institute on Retirement Security, February 2009; see also
“Economic Effects of Public Pensions”

NASRA is a non-profit association whose members are the directors of the nation's state, territorial, and largest statewide public retirement systems. NASRA members oversee retirement systems that hold more than two-thirds of the more than $2 trillion in state and local government assets and that provide pension and other benefits to most state and local government employees.

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BackDROP and Working Past the 5-Year Maximum

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I have recently been told by my 403b administrator that once I hit my 5 year backdrop (in 4 years) it will start to shrink if I continue to work until age 66 (in 8 years). The benefit calculator does not show this; is it true?
Your BackDROP payment is based on the time worked after your normal retirement date. You may work more than five years beyond normal retirement eligibility, but the maximum BackDROP is limited to five years prior to your actual retirement date. Your benefit amount is based on years of service and average salary, so typically the longer you work, the higher your benefit amount. 
It is possible under the MSEP2000 that your BackDROP amount could decrease the longer you work beyond age 62. The MSEP2000 has a temporary benefit amount that is included in both the monthly benefit and the BackDROP distribution. By law, this this benefit cannot be paid after age 62. The longer you work beyond age 62, the less temporary benefit is calculated into your payment. 
For example: Retiring in 2014 at age 60, and electing a 5 year BackDROP payment allows for 5 years of temporary benefit to be calculated into your payment (since you were under 62 during the entire BackDROP period.) Retiring in 2020 at age 66 would have 1 year of temporary benefit and 4 years without (you were 61 at the beginning of your BackDROP period). Retiring in 2024 at age 70 would have no temporary benefit calculated into the payment (you were 62 during your entire BackDROP period). The less temporary benefit the smaller the payment could be. You are gaining additional salary and service credit by working longer, therefore the impact of the loss of the temporary benefit may not be significant.

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Friday Top Five

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From The Center for Retirement Research (CRR) at Boston College: 2010 Survey of Consumer Finances (SCF) Suggests Even Greater Retirement Risks

This CRR brief shows the wealth-to-income ratio for each SCF survey going back to 1983 and suggests reasons why people need a higher wealth-to-income ratio to be as well off as their parents, including "increased life expectancy, the shift to 401(k)s, higher health care costs, and lower real interest rates. " It concludes that the steady ratio of wealth-to-income from 1983 to 2007 "should never have been a source of comfort. The world has changed in important ways that all require more wealth to sustain living standards in retirement. Thus, the sharp decline in the wealth-to-income ratio reported in the 2010 SCF signals even more serious problems for future retirees." You can read the highlights or download the entire brief at the link above.

From The Washington Post: New Rules Expose Bigger Funding Gaps for Public Pensions

New pension fund accounting rules from the bond-rating firm Moody's are reported on in this WAPO piece. "The new rules come at a difficult time for state and local governments struggling with weakened tax revenue and stronger demand for services in the wake of the recession. In addition, states and localities face the prospect of substantial reductions in aid from the federal government beginning in January unless Congress and the White House come up with an alternative to automatic budget cuts." Related, Moody's Investors Service released a list of frequently asked questions regarding the new rules that have been posed by investors, issuers and other interested parties.

From PlanSponsor: Engaging Gen Y in Retirement Saving

"For Gen Y employees, honest and practical education, social media communications and proper incentives will result in an increase in retirement plan participation."

From The Lowell (MA) Sun: When should singles collect Social Security?

This succinct article focuses on collecting social security benefits when you're single and presents a series of questions you should ask yourself as you make your decision regarding this benefit.

From Pension Dialog: Medicare and Retired Public Workers

This blog post argues that Medicare is a program in which many people have a stake, and as the presidential election approaches, will likely dominate the headlines until November.

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

Friday Top Five

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From Ady Dewey at PensionDialog: Future Public Workers Will Pay More and Get Less

In this PD blog post, pensions as tools for attracting and retaining qualified workers is discussed.

From The Best Life Blog: 22 Ideas for Better Retirements for Women

Women generally face worse retirements than men and poverty rates among women age 65+ are much higher than for men in the same age category. This article highlights 22 ideas  that could help improve the financial conditions of women in retirement.

From Bloomberg/BNA: States' Public Retirement Systems Gain 41 Percent on Investments, Census Reports

In its Annual Survey of Public Pensions, the U.S. Census Bureau reports that investment earnings have increased by $119.5 billion from 2010 to 2011. According to the survey, this is the second year in a row since the 2008-09 recession that state pension systems had positive earnings. The Bureau also reports that investment earnings have returned to pre-recession levels. Keith Brainard from NASRA is quoted extensively.  You can read the Census Bureau's Annual Survey of Public Pensions: State Data on their website.

From the AARP Blog: AARP Missouri

The AARP blog has a link called "AARP in Your State," where readers can click on a state from a drop down menu and "learn about day-to-day news, events and opportunities with AARP in your state."

From PlanSponsor: Providers Suggest Ways to Improve Social Security Education

Despite numerous ways Plan sponsors provide information about Social Security benefits, according to researchers from the Pension Research Council, "most plan providers believed that participants still lacked a good understanding of how the Social Security benefit structure works, what level of benefits to expect, and how to evaluate the most effective time to claim benefits." They suggest several ways to improve Social Security education, such as a Social Security Optimizer, more effective material and representative training.

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

MOSERS Reponds to CNBC

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Last week, CNBC released a report on public pension funds that led to incorrect conclusions by many of their readers. They did correctly state that Cliffwater, LLC, an investment advisory firm, recognized MOSERS for achieving annual investment results of 7.1% for the ten-year period ended June 30, 2011, which was the highest return Cliffwater identified in the universe of large public retirement systems for that period.  However, CNBC failed to acknowledge that the annual return of 7.1% was after deducting all related investment fees.

In response to a request for additional information from MOSERS, CNBC was notified that MOSERS achieved annualized returns of 8.07% and 8.55% respectively for the ten and twenty year periods ended June 30, 2012, also after deducting all related investment fees.  CNBC did not include any of this information in their report.

The assumed rate of investment return used by the system’s actuary in determining the system’s financial condition and the state’s contribution rate is 8.00%, after considering all investment expenses.

The original CNBC article was posted on August 10, 2012. Read more about MOSERS' investment returns on our website.

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Friday Top Five

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From MSN Money (Reuters): Why You May Retire in Poverty

That this is appearing in our FTF is not meant to alarm, and certainly MOSERS members can rest assured that their promised defined benefit will be there when they retire, but this article on MSN Money did catch our attention. The suggestion in it is that our society's economic safety net that includes Social Security and pensions seems to be unraveling. A recent NIRS study, which examines the benefits to society of defined benefit pension plans, is cited, as is NIRS Executive Director Diane Oakley. Defined benefit pension plans and Social Security play crucial roles in keeping retirees out of poverty.

From the Squared Away Blog at Boston College: Social Security Advice That Harms Wives

"Most financial advisers give troubling advice to married couples about when to claim their Social Security benefits, advice that can substantially reduce their wife’s income during retirement."

From aiCIOan online magazine for institutional chief investment officers: CalPERS to Critics: Get Your Facts Straight

CalPERS doubles down, again calling out media critics who they say misunderstand and misrepresent the facts when reporting about CalPERS, specifically their 1-year investment returns. In our July 27, 2012 FTF, we brought you the first instance of CalPERS blasting an editorial in the Sonoma County Press Democrat.

From this article: “'CalPERS welcomes dialogue surrounding pension reform,'” the post concluded. “'We would all be better served if those placing blame on public worker pensions learned the facts before venturing an opinion.'”

From the U.S. Government Accountability Office (GAO): Retirement Security: Women Still Face

From the report: "Elderly women, who comprise a growing portion of the U.S. population, have historically been at greater risk of living in poverty than elderly men. Several factors contribute to the higher rate of poverty among elderly women including their tendency to have lower lifetime earnings, take time out of the workforce to care for family members, and outlive their spouses. Other factors could affect older women’s financial insecurity. These include the economic downturn and changing trends in pension plan offerings. In light of these circumstances, GAO was asked to examine (1) how women’s access to and participation in employer-sponsored retirement plans compare to men’s and how they have changed over time, (2) how women’s retirement income compares to men’s and how the composition of their income—the proportion of income coming from different sources—changed with economic conditions and trends in pension design, (3) how later-in-life events affect women’s retirement income security, and (4) what policy options are available to help increase women’s retirement income security. To answer these questions, GAO analyzed data from two nationally representative surveys, conducted a broad literature review, and interviewed a range of experts in the area of retirement security."

From Governing Magazine: Hybrid Pension Plans Attracting More States, Cities

States are taking measures to mitigate what is being called "the public pension crisis." MOSERS is in the category of states that have revised the Defined Benefit (DB) plan itself for employees first hired with the State of Missouri after 2010. Much work was put into retaining the DB plan culture for all State of Missouri employees under MOSERS. Other states are replacing their DB plans with Defined Contribution (DC) plans, and others are moving toward a program that combines aspects of both. These are called Hybrid plans.

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

Life Insurance Upon Retirement

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I would like to know that our options are regarding life insurance once we retire.
There are several Rumor Central posts addressing various aspects of the life insurance benefit administered by MOSERS.You can also read about the life insurance benefit on our website. As always, we encourage you to contact one of our benefit counselors at your convenience to discuss the circumstances regarding your individual retirement.

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What Taxes Are Taken From My Retirement Benefit?

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When you retire and start drawing pay what taxes are taken out each month?
Your retirement benefits are subject to federal and state income tax if you reside in Missouri. At retirement, you can complete a "Substitute W-4P" which allows MOSERS to withhold taxes on your behalf. You may change your withholding election at any time during the year. If you do not choose a federal tax withholding option, MOSERS is required by law to withhold federal taxes as if you elected married with three allowances.

Your MOSERS benefits is impacted by the Public Pension Exemption, To review the implications of the Public Pension Exemption, please review our news archive. We recommend contacting a tax advisor for more information.

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A Year in the Life of MOSERS' Institutional Investments

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FY2012 Market Summary

The Missouri State Employees’ Retirement System (MOSERS) earned a return on investment, net of fees, of 2.2% for the fiscal year ended June 30, 2012.

The year started with large price swings stemming from fears about how Europe’s problems, including their debt crisis and the implementation of austere budget measures, would impact the world economy and the global pace of economic activity.  Specifically, there was worry about how Greece would fund itself in light of the terrible growth attributable to the austerity measures required by other European governments.  This caused risky assets, like stocks, commodities and real estate, to fall approximately 15% to 20% for three months at the beginning of the fiscal year.  Safe assets, such as 30-year US Treasuries, provided a mirror image return and were up 30% over the same stretch.

As fear and uncertainty grew, the Federal Reserve came to the rescue and began to whisper about more quantitative easing. By mid-year the markets began to rally on the news of an economic stabilization and Europe’s leadership committing to a path of economic security.

By the end of the first quarter, governments in Europe had agreed on how to fund Greece and, in turn, Greece had agreed to the debt restructuring and austerity measures required to get international financial assistance.  So, in an illustration of the volatility that marked this year, the markets quickly forgot the old problems and focused on the perception of a better future.  That optimism, however, proved fleeting and by the end of the year attention had shifted back to Europe’s problems and the Federal Reserve admitting enough worry to consider more unconventional measures.

The winter and spring brought optimism back to the markets, with stocks up 24% and 30-year Treasuries down 6%.  Commodities and real estate generally followed stocks as people embraced risk.  Markets began to look past the problems in Europe and the evident economic slowdown to a world where growth normalized.  The problem with normal growth was that energy prices increased at a rapid pace and began to impinge on the consumer’s discretionary cash flow.  With speculations of $5 per gallon gasoline by Memorial Day and consumers’ strapped wallets, the economy showed persistent weakness.  The weakness was great enough that investors began to doubt their enthusiasm heading into summer.

The last quarter of the year was defined by events similar to the first quarter.  Europe’s woes resurfaced in the form of Spanish bond yields.   Although Spain had implemented some austerity measures, the sluggish pace of economic activity and the financial health of their banks brought into question whether or not they could solve their problems without European or international aid.  Global stocks were down about 12% and US Treasuries were up about 12%.  Other risk assets, such as real estate and commodities, followed stocks.

This ebb and flow defined the markets this year.  Things were terrible or great depending on which month you decided to review.  In the end, risk assets, such as stocks, lost money and Treasuries made money.  Accomplishing a 2.2% return with a portfolio that is dominated by risk assets is an achievement in a market as volatile as it was during FY2012.

Seth Kelly is the Manager of Research Investment and Strategy at MOSERS

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Friday Top Five

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From the National Institute for Retirement Security (NIRS): The Pension Factor 2012: The Role of Pensions in Reducing Elder Economic Hardships

Last week we devoted an entire post to the important new NIRS research on the vital role pensions play in reducing poverty, in the form of food, shelter and healthcare hardships, among older Americans. Check out their website to download the full report, view a PowerPoint presentation, a fact sheet or watch the webinar replay.

From the U.S. Senate Committee on Health, Education, Labor and Pensions: The Retirement Crisis and a Plan to Solve It

Senator Tom Harkin, chairman of the U.S. Senate Committee on Health, Education, Labor and Pensions, held a series of hearings that resulted in the issuance of this report. Intending to be a starting place for an evolving discussion about retirement security in the United States, the report details a coming retirement security crisis, brought on by "the breakdown of the traditional 'three-legged stool' of retirement security - pensions, savings and Social Security." In the report, the senator proposes a new approach to rebuild a strong and vibrant pension system for everyone.

From PlanSponsor Magazine: Harkin Retirement System Proposal Gets Mixed Reviews

PlanSponsor spoke with proponents of the senator's plan, as well as one organization that points out some of the plan's weaknesses.

From CalPERS online: CalPERS CEO Issues Statement on Retirement Crisis Report and Plan

CalPERS CEO Anne Stausboll issued this supportive statement of the Harkin Retirement Crisis Report and Plan, saying "in recent decades, defined benefit pension coverage has declined for private sector workers. This has led to a world of haves and have nots and has driven some to try and dismantle public sector defined benefit plans. This is not the right answer."

From The Huffington Post's Money Blog: Five Truths About Public Employee Pensions

In our July13, 2012 FTF post, we pointed you to an article by Harold Schaitberger, general president of the International Association of Fire Fighters, and former lobbyist for the National Conference on Public Employee Retirement Systems, titled 5 Myths About Public Employee Pensions. This week we bring you a similar article, albeit from a slightly different angle, also at HuffPo. Kil Huh, Director of Research at the Pew Center on the States, offers five "truths" of his own, and suggests that Mr. Schaitberger misrepresents both the Pew Center's work and the realities facing state and local governments. We. like Mr. Huh, are happy to see such a vital debate over public pensions taking place in such mainstream media.

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

2012 COLA for Retirees

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Is there going to be a COLA for 2012? If so, how much is it? I can't seem to find the answer on your system.
The 2012 COLA for MSEP 2000 retirees, MSEP retirees hired on or after 8/28/97 and MSEP retirees who have met their COLA cap is 2.526%. The 2012 COLA for MSEP retirees hired prior to 8/28/97 who have not met their COLA cap is 4%. You can watch an explanatory video on COLAs, and read more information on the topic on our website.

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