The bill tightens the Consumer Price Index definition used to compute cost‑of‑living adjustments (COLAs) for retirees in the Maryland State Retirement and Pension System and creates a one‑off rule for the October 2025 CPI value. It codifies that the calculation uses the annual average CPI‑U (all urban consumers, U.S. city average, all items, not seasonally adjusted, 1982–1984=100) and confirms how the Board of Trustees must compute the COLA rate from those annual averages.
Importantly, the bill prescribes that the October 2025 index is the average of the September and November 2025 monthly CPI values, and it applies that value when computing the calendar‑year 2025 annual CPI for purposes of COLAs that take effect July 1, 2026 and July 1, 2027. The Act takes effect immediately as an emergency measure.
At a Glance
What It Does
Specifies the exact CPI series — annual average CPI‑U (US city average, all items, not seasonally adjusted, 1982–84=100) — that the Board must use to compute the cost‑of‑living rate. It also prescribes that the October 2025 monthly CPI be set as the mean of September and November 2025 values for calculating the 2025 annual CPI used in upcoming COLAs.
Who It Affects
State retirees and beneficiaries in Maryland receiving allowances under the State Retirement and Pension System, the Board of Trustees that calculates COLAs, actuaries and fiscal staff in the State’s budget offices, and employers who fund the pension system via employer contributions.
Why It Matters
The bill removes ambiguity about which CPI feeds COLA calculations and fixes a specific method to handle a missing or delayed October 2025 monthly value; that administrative clarity can change the numeric COLA applied on July 1, 2026 and July 1, 2027 and therefore alters near‑term pension payouts and budget projections.
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What This Bill Actually Does
Under current law the system ties its annual COLA rate to changes in a Consumer Price Index, but the statute did not explicitly define which CPI series and averaging method to use for the calendar year calculation. This bill eliminates that uncertainty by specifying the exact CPI series: the annual average of the Bureau of Labor Statistics’ CPI‑U (all urban consumers, U.S. city average, all items, not seasonally adjusted, 1982–84=100).
The Board of Trustees must compute the cost‑of‑living rate by subtracting the annual average CPI from the second preceding calendar year from the annual average CPI for the preceding calendar year, then dividing by the second preceding year’s annual average.
The bill also resolves a discrete data problem for the 2025 calendar year: instead of relying on a single October 2025 CPI value (which may be unavailable, revised, or otherwise problematic in timing), it defines the October 2025 index as the average of September and November 2025 monthly CPI values. That constructed October value becomes part of the calendar‑year 2025 annual average and therefore affects the COLA rate used for allowances effective July 1, 2026 and July 1, 2027.
The Act ties this special rule to those two COLA dates only; subsequent years revert to the standard annual average calculation.Mechanically, the statute preserves the existing distinction between simple and compound COLAs: simple COLAs apply the computed rate to the initial allowance while compound COLAs apply it to the initial allowance plus accumulated COLA amounts. The bill also reaffirms that any computed cost‑of‑living rate remains subject to statutory caps already located in §§ 29‑404 through 29‑408.
Finally, the General Assembly declared the measure an emergency, making it effective on enactment to ensure the Board and payroll systems can use the clarified definition ahead of the next COLA computation cycle.
The Five Things You Need to Know
The bill defines “Consumer Price Index” as the annual average CPI‑U (all urban consumers, U.S. city average, all items, not seasonally adjusted, 1982–1984=100) for the calendar year ending December 31 as published by BLS.
To calculate the cost‑of‑living rate the Board must subtract the annual average CPI for the second preceding calendar year from the annual average CPI for the preceding calendar year and divide that difference by the second preceding year’s annual average.
The Act sets the October 2025 monthly CPI value equal to the mean of the September 2025 and November 2025 CPI values, and it uses that constructed value when forming the 2025 annual average.
The special October 2025 rule applies specifically to COLAs that take effect July 1, 2026 and July 1, 2027; other years use the standard annual average calculation.
The measure is an emergency bill and takes effect on enactment after passage by a three‑fifths yea‑and‑nay vote of each chamber.
Section-by-Section Breakdown
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Precise CPI series specified
This section inserts a definitive statutory definition for “Consumer Price Index”: the annual average CPI‑U (all urban consumers, United States city average, all items, not seasonally adjusted, 1982–1984=100). By naming the series and that it must be the annual average for the calendar year ending December 31, the provision removes ambiguity about seasonal adjustment, geographic scope (national vs. regional), and which BLS publication to use. For administrators and actuaries, that clarity constrains future interpretation and auditing of the COLA calculation.
Formal COLA calculation formula
This subsection codifies the arithmetic the Board must apply to produce the cost‑of‑living rate: subtract the second‑preceding year’s annual CPI average from the preceding year’s annual CPI average, then divide the difference by the second‑preceding year’s annual average. The provision also preserves the existing mechanism that subjects any computed rate to statutory caps elsewhere in the subtitle, so higher computed rates still can be reduced by those caps.
Application to simple and compound COLAs
The bill keeps the current statutory rules distinguishing simple and compound adjustments: simple COLAs multiply the computed rate by the initial allowance, while compound COLAs multiply the rate by the initial allowance plus previously accumulated COLA amounts. Practically, this means the clarified CPI definition feeds both calculation pathways without changing their algebraic structure; the fiscal outcome will depend on whether a plan’s COLA is simple or compound.
One‑time fix for October 2025 CPI
This standalone section introduces a temporary data rule: for purposes of computing the 2025 calendar‑year annual CPI, the October 2025 monthly CPI value is the average of the September 2025 and November 2025 monthly CPI values. The bill applies that constructed October value only when computing the 2025 annual average used to determine COLAs effective July 1, 2026 and July 1, 2027. The practical implication is that an anomalous or missing October reading cannot derail the 2025 annual average used for two upcoming COLAs.
Immediate effect to support upcoming COLA calculations
The General Assembly declares the Act an emergency measure and makes it effective on enactment after the requisite three‑fifths votes. That choice accelerates when the Board and payroll units must apply the clarified CPI definition and the October 2025 construction — important because COLA computations and budget planning for the fiscal year beginning July 1, 2026 will rely on a settled statutory methodology.
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Who Benefits
- Retirees and beneficiaries in the State Retirement and Pension System — They gain predictability about which CPI series determines COLAs and a defined method for handling an anomalous October 2025 value, reducing disputes and administrative delay around upcoming adjustments.
- Board of Trustees and system actuaries — The clarified CPI specification and the one‑off October 2025 rule reduce legal and technical uncertainty when they compute rates and certify COLAs, simplifying actuarial reporting.
- State payroll and benefits administrators — Immediate statutory clarity helps payroll offices prepare systems and communications for COLAs that take effect July 1, 2026 and 2027, minimizing operational risk from late methodological decisions.
Who Bears the Cost
- Maryland State employers / the State budget — If the clarified CPI or the constructed October 2025 value produces a higher COLA, employer contribution requirements and near‑term pension outlays could increase, affecting the State’s fiscal plan.
- Pension fund management and actuarial teams — They must incorporate the new rule into models, potentially rerun valuations and amortization schedules, and absorb the administrative cost of reconciling historical methodology with the new statutory definition.
- Systems and IT staff supporting payroll — Implementing the special October 2025 averaging and any related system changes requires one‑time programming, testing, and validation work ahead of the July 2026 payroll cycle.
Key Issues
The Core Tension
The central dilemma is between administrative certainty and substantive fairness: the bill prioritizes a clear, implementable CPI definition (and a quick, one‑off fix for October 2025) to enable timely COLA calculations, but that same clarity can lock in a measurement choice—national CPI‑U and an averaged October value—that may not reflect Maryland’s local cost pressures and can materially affect benefit levels and state budget obligations without a broader policy review.
The bill resolves a narrow technical ambiguity about which CPI to use and sets a pragmatic one‑off rule for October 2025, but it stops short of addressing broader methodological choices that materially affect retirees’ incomes and the system’s liabilities. Using the national, not regionally adjusted, CPI‑U favors consistency with federal publications and with many pension benchmarks, but it may misstate local inflation experiences in Maryland.
The one‑time averaging for October 2025 is a practical fix for a missing or problematic data point, yet averaging adjacent months can either mute or amplify price movements depending on whether September or November are atypical months.
Implementation will raise practical questions that the bill does not resolve: how the Board must document the constructed October value for audit purposes; whether the averaging rule anticipates or precludes use of BLS revisions to monthly CPI values; and how the special rule interacts with the statutory caps in §§ 29‑404 through 29‑408 when those caps would otherwise reduce a computed rate. The emergency effective date speeds application but also truncates time for stakeholder review, system testing, and communication to beneficiaries and employers.
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