SB724 narrows which Consumer Price Index the State Retirement and Pension System must use to compute cost‑of‑living adjustments (COLAs) and establishes a one‑time rule for handling the October 2025 CPI value. The bill confirms the System must use the annual average CPI‑U (All Urban Consumers, U.S. city average, all items, not seasonally adjusted, 1982–84=100) and spells out how the COLA percentage is calculated from two calendar‑year averages.
The change matters to retirees, plan actuaries, and budget officers because it removes ambiguity about the data series and alters how the 2025 CPI is treated for COLAs effective July 1, 2026 and July 1, 2027. The measure is enacted as an emergency, so administrators must apply the clarified methodology immediately for upcoming COLA calculations and related actuarial work.
At a Glance
What It Does
The bill fixes the CPI series the Board must use — the annual average CPI‑U (U.S. city average, all items, not seasonally adjusted) — and codifies the arithmetic the Board uses to derive the COLA rate from two calendar‑year CPI averages. It also creates a one‑time rule that sets October 2025’s index value as the simple average of September and November 2025.
Who It Affects
The State Retirement and Pension System Board of Trustees, plan actuaries, payroll and benefits administrators, the State budget office, and retired members receiving COLAs are directly affected. Participating employers and actuarial valuation teams will need to incorporate any change in projected benefit payments.
Why It Matters
A precise CPI definition removes debate over which BLS series or seasonal adjustments to use and reduces legal and administrative ambiguity. The October 2025 averaging rule changes the numeric input to the 2025 calendar‑year average CPI and therefore can change COLA percentages and short‑term plan liabilities.
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What This Bill Actually Does
SB724 does two related things. First, it confirms that the System must use the Bureau of Labor Statistics’ annual average CPI‑U — explicitly: all urban consumers, U.S. city average, all items, not seasonally adjusted, 1982–84 = 100 — as the index for calculating the cost‑of‑living rate.
Second, it restates the existing arithmetic for converting two calendar‑year CPI averages into a COLA percentage: subtract the CPI for the second‑preceding calendar year from the preceding calendar year’s CPI, then divide that difference by the second‑preceding year’s CPI.
The bill also addresses a discrete data issue for the 2025 calendar year. Instead of using the October 2025 CPI value as published, the statute defines the October 2025 Index Value as the simple average of the CPI values for September and November 2025.
That statutorily constructed October value feeds into the 2025 annual average CPI, which in turn is the input used to compute COLAs effective July 1, 2026 and July 1, 2027.Operationally, the Board of Trustees and the System’s actuary must adopt these specific sources and steps when calculating the cost‑of‑living rate and the resulting dollar adjustments. The text preserves the existing statutory caps and the distinction between simple and compound COLAs; it does not change eligibility rules or who receives COLAs.
Finally, the emergency clause makes the change effective on enactment, so administrators should plan to reproduce prior calculations using the clarified index and apply the October 2025 averaging rule where relevant.
The Five Things You Need to Know
Section 29–401(d) defines “Consumer Price Index” as the annual average CPI‑U (All Urban Consumers, U.S. city average, all items, not seasonally adjusted, 1982–84 = 100).
Section 29–402(c) requires the COLA rate be computed by (CPI in preceding calendar year − CPI in second‑preceding calendar year) ÷ CPI in second‑preceding calendar year.
The statute caps the computed cost‑of‑living rate where caps apply under §§29–404(c), 29–405(c), 29–406(c), and 29–408(c).
Section 2 makes October 2025’s index value equal to (September 2025 CPI + November 2025 CPI) ÷ 2 and applies that to the 2025 calendar‑year CPI used for COLAs effective July 1, 2026 and July 1, 2027.
The act is declared an emergency and takes effect immediately upon enactment.
Section-by-Section Breakdown
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Carry forward key pension provisions without substantive change
The bill repeats several sections of the State Personnel and Pensions Article (including 20–101 and cross references) by repealing and reenacting them without amendment. Practically, this confirms the bill edits are limited to clarifying language and the new October 2025 rule; it does not alter unrelated pension definitions or benefit formulas.
Specifies the BLS series the System must use
This section pins the System to a single BLS series and format: the annual average CPI‑U, U.S. city average, all items, not seasonally adjusted, base 1982–84=100. For administrators that removes discretion over using regional indices, seasonally adjusted data, or alternative BLS series. The Board must now pull the published calendar‑year annual average value from the national CPI‑U table when computing COLAs.
Standardizes the arithmetic for converting CPI change into a COLA
These provisions set the two‑step arithmetic: take the difference between two calendar‑year annual averages and divide by the older year’s average to get the cost‑of‑living rate. Section 29–402(d) then ties that rate to the dollar adjustment mechanics, preserving the existing separate computations for simple and compound COLAs. Administrators must ensure calculators and actuarial models implement the subtraction/division sequence exactly and apply statutory caps where relevant.
One‑time treatment for October 2025 CPI
This new, standalone provision defines an 'October 2025 Index Value' as the average of September and November 2025 CPI monthly values and requires using that constructed October value when computing the 2025 calendar‑year annual average. The provision explicitly targets COLAs effective July 1, 2026 and July 1, 2027. Implementers should replace the published October 2025 number with the statutory average when producing the 2025 annual average CPI.
Emergency effective date
The bill declares itself an emergency measure and takes effect on enactment. That compresses the timeline for administrative implementation: actuaries and the Board must apply the clarified CPI definition and the October 2025 averaging rule for any COLA calculations and reporting that occur after enactment.
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Who Benefits
- Retired members and beneficiaries who receive COLAs — benefit amounts will be determined under a single, specified CPI series, reducing ambiguity about which published index drives increases.
- Plan administrators and the Board of Trustees — they get statutory clarity on the data source and calculation steps, reducing litigation risk and the need for ad hoc policy guidance.
- Actuaries and valuation teams — explicit indexing rules and the one‑time October 2025 method let actuaries lock inputs for short‑term projections and produce consistent valuation assumptions.
Who Bears the Cost
- State Retirement and Pension System (the System) — if the clarified CPI or the Oct‑2025 averaging increases the measured inflation rate for 2025, the System could record higher near‑term COLA payments and actuarial liabilities.
- State budget office and participating employers — higher employer contribution rates could follow higher actuarial liabilities and increased benefit payments, affecting agency budgets.
- Plan administrators and payroll staff — they must change calculation procedures, update software/worksheets, and document the statutory one‑time adjustment for audits and member communications.
Key Issues
The Core Tension
The bill resolves uncertainty about which CPI drives pension COLAs to improve predictability for administrators and retirees, but it does so by choosing a single national, not seasonally adjusted series and by legislating a one‑time modification to a published datapoint; that reduces ambiguity but substitutes a policy judgment for statistical reporting, potentially advantaging either beneficiaries or taxpayers depending on how the constructed October 2025 value alters the 2025 annual average.
The bill trades ambiguity for a single, legislated data choice and a bespoke fix for one month in 2025. That clarity reduces administrative discretion but embeds a policy choice about which BLS series represents 'consumer prices' for Maryland retirees — the national, not regional or seasonally adjusted, series.
Because the law prescribes the October 2025 value rather than leaving it to the BLS publication, it effectively overrides a statistical datapoint with a legislative computation; that approach is simple to implement but may produce a 2025 annual average that differs from the BLS‑published calendar‑year average if BLS revisions occur.
Implementation questions remain. The statute does not say how to handle BLS retroactive revisions to monthly CPI values made after the Board calculates the COLA, nor does it address whether the October 2025 constructed value should be adjusted if the September or November monthly values are later revised.
The interplay between the one‑time average and existing statutory COLA caps could also produce surprising outcomes: a modest change in the 2025 average CPI could trigger or avoid a cap in a way that materially changes plan outlays. Finally, because the statute uses a national series, the inflation measure may diverge from retirees’ local experience — a political and actuarial trade‑off the bill does not resolve.
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