COST-OF-LIVING ADJUSTMENT (COLA)
UNDERSTANDING COST-OF-LIVING ADJUSTMENT (COLA) AND YOUR LACERA ALLOWANCE
By law, LACERA retirement and survivor allowances are subject to an Annual Cost-of-Living Adjustment (COLA). The adjustment is driven by changes in the cost of living over the previous 12-month period as of December 31.
Each year, the Board of Retirement (BOR) is required to review the Bureau of Labor Statistics Consumer Price Index (CPI) for all Urban Consumers in the Los Angeles-Anaheim-Riverside area to determine whether there has been an increase or decrease in the cost of living over the prior year.* The difference is reflected as a percentage.
The maximum allowable COLA adjustment is determined by the provisions of each LACERA retirement plan. Plan A allows a maximum adjustment of 3 percent; the other LACERA plans allow a maximum of 2 percent.
LACERA applies the percentage of annual increase or decrease in the cost of living, rounded to the nearest one-half of one percent, to each total retirement and survivor allowance. Any percentage above the maximum allowable amount is added to the COLA Accumulation to supplement future COLA benefits. The adjustment is effective annually on April 1 and begins with April 30 allowances. Members who retired prior to April 1 and eligible survivors of members who died prior to April 1 are eligible for COLA.
MOST COLA ADJUSTMENTS ARE INCREASES; HOWEVER DECREASES ARE POSSIBLE
Typically, the CPI increases from one year to the next; as a result COLA adjustments are typically applied as increases. However, if the CPI decreases from one year to the next, it is possible for the COLA adjustment to be applied as a decrease.
It is important to understand that 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; the amount of your beginning allowance is guaranteed for life.
In other words, regardless of the status of the economy, your retirement or survivor allowance can never be lower than the amount you are originally granted.
Click here for information and examples of how cost-of-living increases and decreases and COLA Accumulations may affect your LACERA allowance.
*The Bureau of Labor Statistics defines the CPI as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” For additional information on the Consumer Price Index, visit the Bureau of Labor Statistics web site at www.bls.gov/cpi/home.htm.
11/29/10
