Annual Cost-of Living Adjustments (COLAs) are provided by law to protect retirees’ monthly retirement benefits against inflation.  California Government Code states that each year, prior to April 1, the Board of Retirement 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 an increase/decrease in the Cost-of-Living it grants a COLA that increases/decreases monthly benefits.

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

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

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

If the Cost-of-Living Remains Unchanged…

No COLA adjustment will be granted if there is no change in the CPI from the prior year. This occurred in 2009 when the Bureau of Labor Statistics announced that the 2008 CPI percentage increase over the prior year was 0.02%. In accordance with the law, when rounded the percentage equaled zero. Based on this rounding StanCERA’s Board of Retirement announced a zero COLA would apply in 2009.

Let’s Explore How This Affected StanCERA Retirees and Survivors…

Retirees and survivors with a COLA Accumulation Bank carryover equal to or greater than 3.0% received a full 3.0% increase in benefits in 2009. To fund these increases StanCERA. decreased these retirees’ COLA Accumulation Bank Carryover by an amount of 3.0% as in Example 1.

Some retirees and survivors received an increase limited by the amount of their COLA Accumulation Bank Carryover. To fund these increases, StanCERA decreased these retirees’ COLA Accumulation Bank Carryover by an amount equal to the percentage withdrawn from their COLA Accumulation Bank Carryover. Example 2 uses a COLA Accumulation Bank Carryover of an amount less than 3.0%.

If the CPI remained unchanged in the following year of 2010 the retiree in Example 2 would not have received an increase in 2010 because their COLA Accumulation Bank Carryover was depleted during the prior year.

If the CPI increased in the following year of 2010 the retiree in Example 2 would have received an increase in their benefits. If the CPI increase was in excess of the annual maximum allowable 3% they would have received a COLA of 3% and any excess would have increased their COLA Accumulation Bank.

As of 2009 a member whose retirement date was prior to 1977 had a COLA Accumulation Bank Carryover of 50% or more. They received COLA increases even when more recent retirees did not receive COLA increases.

Since 1956 we have only seen increasing CPIs and this resulted in continuing COLA increases. Decreases are possible as evidenced in 1949 and 1954. Note: The law dictates that Cost-of-Living decreases may not reduce a retiree’s benefits or a survivor’s benefits to an amount less than their original benefit amount (Pension, Annuity and Survivor Death Benefit). Only COLA payments can be subject to a decrease. Your pay stub lists your COL pay for easy identification.

In summary, a decrease to a retiree’s COLA pay can only occur if the amount in the retiree’s COLA Accumulation Bank Carryover is less than the COLA decrease. If the retiree has anything in their COLA Accumulation Bank Carryover, StanCERA will use the available amount to partially “fund” the decrease. The remaining portion of the decrease will reduce the retiree’s monthly COL pay.

To date this has not occurred; however, Example 3 is a hypothetical example using a COLA decrease of 2% when the COLA Accumulation Bank Carryover is less than 2%.

In Example 3 the retiree’s COLA pay would be reduced by 0.5% rather than the full 2.0% because there was 1.5% available in their COLA Accumulation Bank carryover. The retiree’s COLA Accumulation Bank carryover balance would become 0%. This decrease can only be applied to their COL pay and cannot reduce their original benefit amount (Pension, Annuity and Survivor Death Benefit). If insufficient COL pay is available to fund this percentage the COLA Accumulation Bank carryover will be a negative amount.

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

Disclaimer: While reading this material, remember that StanCERA is governed by the County Employees Retirement Law of 1937 (1937 Act).  The statements in this website are general in nature; however, the 1937 Act is complex and subject to change. If there is a conflict between the law and this website any decisions will be based on the law and not this website.

Cost-of-Living Adjustment (COLA ) History

Government Code Section 31870.1, which was first adopted by the County Board of Supervisors in 1969, sets forth the rules for granting a Cost-of-Living Adjustment (COLA) to retirees of StanCERA. The COLA is determined annually based on increases or decreases in December’s Consumer Price Index for All Urban Consumers in the San Francisco-Oakland-San Jose area (CPI-U), using a base period of 1982-1984. The ratio is calculated and rounded to the nearest one-half percent.