Can you explain the old model vs. the new model (Act 184)?
The prior method used for funding COLAs did not result in dependable, meaningful COLAs. Under the old model, the employer indirectly funded COLAs through a gainsharing arrangement where excess investment earnings were used to pay for COLAs.
Under Act 184, the gainsharing funding model ends, and employers directly fund COLAs. Essentially, funding is now a component of the annual employer contribution rate and will be deposited directly into a newly created COLA account. As the Initial Unfunded Accrued Liability (IUAL) is paid off, employer contributions are expected to decline. Act 184 captures a portion of these, and other expected decreases to fund COLAs. Beginning in 2024, deposits will be made into the COLA account in the amount of 1.5% of payroll, growing until deposits reach a maximum of 2.5% of payroll.