The North Carolina state Legislature is considering a 2% increase in cost-of-living-adjustments, or COLA, for teachers and state retirees. House Bill 269, which has bipartisan support, would set aside $192 million over the next two years—$96 million per year—to fund the COLA increase for any public worker, or their beneficiary, whose retirement began on or before July 1, 2020, the Hendersonville Times-News reported.

If passed and signed into law by the governor, the COLA increase would go into effect on July 1, 2021.

The Hendersonville Times-News reported that public workers have called on legislative leaders to provide the COLA increase to ensure the value of their pensions isn’t deteriorated by inflation. Generally speaking, this is a good thing and it’s entirely reasonable for North Carolina to consider providing a 2% COLA this year.

But, the Legislature should also be sure that it adequately pays for that benefit, too. The North Carolina Legislature is wise to appropriate general fund money to pay for this COLA, rather than just using existing pension fund dollars since the state’s statewide retirement systems are facing pension debt issues, which stands at about $40 billion. The big question is whether the appropriated dollars will be enough.

North Carolina is using a 6.5% investment assumption rate, which is more reasonable than the national average. It would be smarter to price the cost of this COLA using a lower investment assumption (6% or 5.5%), just to make sure that this isn’t adding a burden to the existing system and effectively kicking the costs of this increase down the road.