HOW COST-OF-LIVING INCREASES AND DECREASES ARE APPLIED TO LACERA ALLOWANCES
WHEN THE COST OF LIVING INCREASES
When the BOR determines the cost of living has increased, it grants a Cost-of-Living Adjustment (COLA) that increases monthly allowances. According to the provisions of LACERA retirement plans, if the COLA percentage exceeds the maximum allowable, the excess percentage is accumulated to supplement future COLA benefits. The accumulated percentage carryover is known as the COLA Accumulation. The longer you have been retired (or receiving a survivor's allowance), the more COLA carryover you have accumulated.

LACERA uses the COLA Accumulation to offset any COLA decreases, as well as to fund the maximum increase allowable under each plan.

IF THERE IS NO CHANGE IN THE COST OF LIVING
If the CPI is unchanged from the prior year, no COLA adjustment (or zero COLA) will be granted. If this occurs, retirees/survivors would still receive the maximum allowable COLA increase, provided there is sufficient COLA Accumulation to fund it.

NOTE: Due to a zero 2009 COLA adjustment, Plan A members who retired between 4/1/06 and 3/31/08, will not receive the maximum 3 percent COLA increase allowable under their plan. The COLA Accumulation for that group is less than the maximum allowable percentage; the increase will be limited to the total of their COLA Accumulation. This also applies to survivors of members who died during this period.

WHEN THE COST OF LIVING DECREASES
If the BOR were to determine, based on the CPI, that a COLA decrease was indicated, in most cases, a deduction to allowances would NOT be necessary. Furthermore, in most cases, LACERA would apply the maximum allowable increase to the allowances. This is because most retirees/survivors have a COLA Accumulation large enough to offset any negative COLA adjustment and to fund the maximum COLA increase.

Should a negative COLA adjustment become necessary, LACERA would reduce the plan's COLA accumulation, rather than allowances, by the amount of the negative adjustment. Assuming sufficient COLA Accumulation remained, LACERA would apply the maximum percentage increase allowable to allowances. The increases would be funded through a corresponding reduction to the COLA Accumulation.

If there's enough COLA Accumulation to fund an increase in an amount less than the maximum allowable, LACERA will apply an increase equal to the amount of the COLA Accumulation.

A decrease to a retiree/survivor allowance could only occur if the retiree/survivor did not have a COLA Accumulation large enough to offset the percentage of the COLA decrease.**

EXAMPLE 1: Let's suppose the COLA adjustment for the year is a negative 1.5 (-1.5) percent. The chart below illustrates how the COLA Accumulation would apply to a member who retired in March 1982 under Plan A.*

In this example, even though the COLA adjustment is a negative percentage, the retiree/survivor would receive the maximum COLA increase allowable under Plan A.

EXAMPLE 2: This chart shows how a negative 1.5 percent (-1.5) COLA adjustment would affect a member who retired in March 2008 under Plan D.*

Although Plan D allows a maximum increase of 2 percent, this retiree/survivor would receive an increase of 0.7 percent. The increase is limited to the percentage of COLA Accumulation available to fund it.

EXAMPLE 3: This chart illustrates how a negative 1.5 percent (-1.5) COLA adjustment would affect a member who retired in March 2008 under Plan A.*

In Example 3, the retiree's/survivor's allowance would be reduced by 0.3 percent, rather than the full -1.5 percent of the COLA adjustment; the difference would be offset by the 1.2 percent COLA accumulation. This member's COLA Accumulation has been depleted.

As you can see, the COLA Accumulation provides a hedge against reductions to prior COLA increases. It also serves to increase retirees' and survivors' chances of receiving the maximum annual allowable COLA increase.

For information regarding financial or legal matters, consult a professional advisor. LACERA does not offer financial or legal advice. For information on your retirement account, call 1-800-786-6464 to speak with a LACERA Retirement Benefits Specialist.

* Data also applies to survivors of members who died during that period.
**The law dictates a cost-of-living decrease may not reduce a member's or survivor's allowance to an amount less than the member/survivor received on the effective date of the allowance. Only past COLA increases could ever be subject to a decrease.

7/30/09