Retiree Cost-of-Living Adjustment (COLA) & Accumulation Bank

Annual cost-of living adjustments (COLAs) are provided by law to protect retiree’s monthly allowances against inflation. California Government Code mandates that each year, prior to April 1, the Board of Retirement (BOR) will determine whether there has been an increase or decrease in the cost of living, as reflected in the Bureau of Labor Statistics Consumer Price Index (CPI). When the BOR is notified of a cost of living increase it grants a COLA that increases monthly allowances.

The law also sets the annual maximum COLA at 3%. If the COLA percentage exceeds the maximum allowable the excess percentage is accumulated to supplement future COLA benefits. This is known as the COLA Accumulation. The longer you are retired or receiving benefits the more COLA Accumulation you can carry over.

The COLA Accumulation comes into play when inflation or deflation is more (or less) than the maximum allowable 3% Cost-of-Living Adjustment.

If the CPI is greater than the allowable 3% increase, your COLA Accumulation will grow. This would allow you to receive a COLA even in years with a zero or a negative CPI.

If the Cost of Living Remains Unchanged

If there is no change in the CPI from the prior year, no COLA adjustment will be granted. This happened in 2009. The Bureau of Labor Statistics announced the 2008 CPI percentage change over the prior year (December 2007 – December 2008) was 0.02%. When rounded in accordance with the law, the percentage becomes zero. Based on that, the StanCERA BOR announced a zero COLA would apply in 2009.

Let’s Explore How This Affected StanCERA Retirees and Survivors

Retirees/Survivors with COLA Accumulations equal to or greater than the maximum 3% received the full 3% increase. To fund these increases, StanCERA decreased these members’ COLA Accumulation by 3%.

Other Retirees/Survivors received an increase limited to the amount of their COLA Accumulation. Example 1 illustrates a member who retired in the summer of 1992; by 2009 this member had a COLA Accumulation of 1.5%.

Example 1
COLA Accumulation (carry over)	=	1.5%
CPI Change	=	0%
Withdrawal from COLA Accumulation to fund increase	=	1.5%
New Balance of member’s COLA Accumulation	=	0%
Amount of 2009 increase to member’s monthly allowance	=	1.5%

If the CPI remains unchanged next year, our example retiree will not receive an increase, because their COLA Accumulations has been totally depleted.

As of 2009, a member whose retire date is prior to 1977 has an Accumulation of 50% or more, and would receive COLA increases even when other, more recent retirees, would not receive a COLA increase.

If the CPI increases next year, our example retiree will receive an increase. If the CPI increase is in excess of the maximum allowable 3%, the excess will increase their COLA Accumulation.

Since 1956 we have only seen increasing CPIs. This has resulted in continuing COLA increases. However decreases are possible. In 1949 and 1954 the CPI decreased.*

Note: The law dictates a cost-of-living decrease may not reduce a Retiree’s or survivor’s allowance to an amount less than the original allowance (Pension, Annuity, or Survivor Death Benefit). Only COLA payments can be subject to a decrease. Your pay stub lists your COLA or Disability COLA pay for easy identification.

To summarize: A decrease to a retiree’s pay can only occur if the amount in the retiree’s COLA Accumulation is less than the COLA decrease. If the retiree has anything in his or her COLA Accumulation StanCERA will use the available amount to partially “fund” the decrease. The remaining portion of the decrease will reduce the retiree’s monthly COLA pay.


An Example of a COLA decrease

To date this has not occurred, but let’s consider a hypothetical example using a COLA decrease of 2%.

Example 2 - HYPOTHETICAL Retiree with COLA Accumulation less than amount of CPI Decrease
COLA Accumulation (carry over)	=	1.5%
CPI Change	=	- 2.0%
Withdrawal from COLA Accumulation to fund increase	=	1.5%
New Balance of member’s COLA Accumulation	=	0%
Amount of 2009 decrease to  member’s monthly allowance	=	- 0.5%

In Example 2, the retiree’s COLA pay would be reduced 0.5% rather than the full 2.0% because there is 1.5% in the COLA Accumulation. After this update, this member’s COLA accumulation will be reduced to 0%.



Note:   Tier 3 Retirees do not qualify for COLA pay and will not be affected by either increases or decreases in the CPI.