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BENEFITS


FAQS - PLAN E ELECTIVE COLA

  1. What is COLA?

    COLA is a cost-of-living adjustment to your retirement allowance that may be granted annually by the Board of Retirement (BOR). Plan E members became eligible for COLA on June 4, 2002.

    California law 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) for All Urban Consumers in the Los Angeles-Anaheim-Riverside area.

    If the CPI has increased, the BOR grants a COLA increase, effective April 1,for monthly retirement and survivor allowances.* The maximum allowable annual increase for Plan E is 2.0 percent.

    COLA granted by the BOR applies to the portion of your retirement allowance that is based on service credit earned on and after June 4, 2002. COLA adjustments for members with service credit earned prior to June 4, 2002 are based on a ratio of months of service earned after June 4, 2002 divided by the total months of service.

    *In the event the CPI has decreased, it is possible for the Board to apply a COLA decrease. However, in the event a cost-of-living decrease is ever required, it may not reduce a member’s allowance to an amount less than the allowance received at the time of retirement. Only past COLA increases could ever be subject to a decrease.

  2. What is the difference between Plan E COLA and Plan E Elective COLA?

    COLA granted to Plan E members by the BOR (sometimes referred to as Automatic COLA) applies to service credit earned on or after June 4, 2002. When the BOR determines a COLA adjustment is warranted, COLA is applied automatically; it is not something you purchase.

    Elective COLA is a purchasable cost-of-living benefit that applies to service credit earned under Plan E prior to June 4, 2002 (not including purchased ARC). Purchasing Plan E Elective COLA makes a greater portion of your retirement allowance eligible for a cost-of-living adjustment.

  3. What is the possible advantage of purchasing Plan E Elective COLA?

    Plan E Elective COLA may help you keep up with inflation after retirement and provide a COLA benefit for your survivor upon your death.

    The COLA benefit may increase your retirement allowance (and survivor allowance, if any) by up to 2.0 percent per year. The actual benefit varies according to the fluctuation of the Consumer Price Index (the basis of the percentage adjustment granted by the BOR) and the amount of Plan E Elective COLA you purchase.

  4. Are there situations in which I would not benefit from Plan E Elective COLA?

    Yes. Your cost for Plan E Elective COLA is based, in part, on actuarial assumptions for life expectancy and annual inflation. If you do not reach the actuarially-projected life expectancy, or inflation is lower than the assumption, you may not recover your total cost.

  5. Who is eligible to purchase Plan E Elective COLA?

    If you earned Plan E service credit prior to June 4, 2002 and you are currently an active Plan E member, you are eligible to purchase Plan E Elective COLA.

  6. I was previously in Plan E and terminated in 2001. I returned to County employment and Plan E. Can I purchase COLA for my previous Plan E time?

    If your previous period of Plan E service credit was vested, and was earned prior to June 4, 2002, and if you are currently a Plan E member, yes, you may purchase Plan E Elective COLA for that service.*

    If your previous period of Plan E service credit was nonvested, you forfeited that service credit and cannot purchase Plan E Elective COLA for that service.

    *Vesting entitles you to a retirement allowance when you terminate employment and meet the minimum age requirement. In Plan E, you become vested when you have ten years of County retirement service credit.

  7. How much Plan E Elective COLA may I purchase?

    You may purchase Plan E Elective COLA for some or all of your eligible Plan E service credit earned prior to June 4, 2002. Note that Additional Retirement Credit (ARC) is not eligible for Plan E Elective COLA.

  8. What is COLA Accumulation?

    COLA Accumulation is the accumulated percentage carryover that occurs in years when the BOR authorizes a COLA percentage adjustment in excess of the maximum 2 percent adjustment permitted under Plan E. (All COLA adjustments authorized by the BOR are based on the annual CPI and take effect April 1.)

    Think of your COLA Accumulation as a bank. In years where the BOR authorizes a COLA increase greater than 2 percent, the excess percentage is “deposited” in your COLA “bank” and “saved” for possible use in the future. In years where the BOR authorizes a COLA increase of less than 2 percent, the difference between 2 percent and the percentage granted is “withdrawn” from your COLA Accumulation (assuming your COLA Accumulation is sufficient)to fund the shortfall and allow you to receive the maximum 2 percent COLA increase permitted under Plan E.

    For example: If the CPI change is 3.0 percent, the BOR will grant the maximum 2.0 percent COLA increase and add the excess 1.0 percent to your COLA Accumulation. Should a future CPI change by 1.5 percent, an additional 0.5 percent will be withdrawn from your COLA Accumulation to fund the full maximum allowable COLA increase of 2.0 percent.

  9. Am I eligible for STAR COLA, too?

    No. STAR COLA is for retirees enrolled in contributory plans A, B, C, or D only.

  10. How is the cost of Plan E Elective COLA calculated?

    The cost to purchase COLA is based on the estimated cost of the future Elective COLA benefit; therefore, you must pay the full actuarial cost of your estimated future Plan E Elective COLA benefit. At the time of purchase, LACERA will project the cost of your Elective COLA based on:

    • Your current pensionable earnings
    • Your current age
    • Years of service (not including ARC purchases)
    • Spouse or domestic partner’s age (if applicable)
    • Actuarial assumptions for:
      • Increases to your pensionable earnings
      • Retirement at age 65
      • Life expectancy for member and spouse or domestic partner
    • Any years of County service covered by Social Security
    • Unmodified Retirement Option

    At retirement, LACERA will use your actual retirement factors to recalculate the cost of your Elective COLA purchase. Any difference between the final calculation and the initial projection will determine whether you owe a balance to LACERA or LACERA owes you a partial refund.

  11. What types of funds may I use to purchase Plan E Elective COLA?

    You may purchase Plan E COLA using any of the following before-tax funds:

    • Payroll Deductions
    • Qualified Plans: 401(k)/KEOGH
    • 457 Fund Plan Transfers: In-service or after termination*
    • IRAs: Non-Roth/Non-After Tax
    • 403(b)

    You may also purchase Plan E COLA using after-tax funds.

    *Certain restrictions apply to using 457 Plan funds while in service; check with the plan administrator for details pertaining to your personal situation.

  12. What are the contract payment terms?

    Contract terms (payment periods) range from 1 month to 120 months (10 years).

  13. Can I terminate the contract if I change my mind?

    The ability to change or revoke your contract hinges on the type of payment method you select. Signed contracts that include payroll deductions or other before-tax funds to purchase Plan E Elective COLA are irrevocable while you are an active employee. However, at termination or retirement, you may revoke your election to receive Plan E Elective COLA and receive a refund of your total payments and accrued interest.

    Plan E COLA purchase contracts that indicate payments will be made exclusively with after-tax dollars may be revised or revoked.

  14. When will payroll deductions begin?

    Your monthly payroll deductions will begin within 30-45 days after LACERA receives your signed contract, and will be reflected on your paycheck on the 15th of each month.

  15. What tax implications should I consider?

    If you make a before-tax lump-sum rollover from a 401(k), IRA, or other tax-qualified plan, you will not pay taxes on the amount you roll over until you receive your retirement allowance or terminate County service and withdraw your contributions, or when your beneficiary receives a benefit upon your death.

    If you elect monthly payroll deductions, payments are deducted from your monthly gross salary before income tax is withheld, which reduces your gross taxable income reported to the IRS. Your contributions and the interest credited on those contributions are not subject to income tax until you receive your retirement allowance or terminate County service, or when your beneficiary receives a benefit upon your death.

    If you revoke your election at termination or retirement, any amount paid with payroll deductions, plus any interest accrued on that payment amount, will be refunded directly to you, less tax withholding. However, if you paid your contract, in part or in full, with a rollover from a qualified plan or IRA, you may elect to roll over the original rollover amount and accrued interest on that rollover amount to a qualified plan or IRA.

    Consult with a professional advisor regarding your personal situation. LACERA does not offer legal or tax advice.

  16. What happens to the cost of my Plan E Elective COLA when I retire?

    At retirement, the cost of your Plan E Elective COLA benefit will be recalculated using actual retirement factors that affect your future COLA benefit, such as your Retirement Option and your final compensation. Any difference between this final calculation (at retirement) and the initial projection (when you began your payment contract) will determine your balance due or partial refund amount. You will have the following options:

    • You may pay any balance due within 120 days after your effective date of retirement
    • You may revoke your election and receive a refund of your total payments and accrued interest (Less any applicable mandatory withholding tax)
    • LACERA will prorate your Plan E Elective COLA benefit to reflect the portion you purchased
  17. How will my Plan E Elective COLA take effect when I retire?

    Your retirement allowance will be eligible for a COLA adjustment on April 1 following your retirement date and on each April 1 thereafter. If you purchased Elective COLA based on all the service credit you earned prior to June 4, 2002, any COLA adjustment approved by the BOR will be applied to your entire allowance. If the Elective COLA you purchased covers only a portion of your pre-June 4, 2002 service credit, COLA adjustments will be applied proportionally.

  18. What happens if I terminate County employment before completing the contract?

    If you terminate before completing payment, you have three options at the time of termination:

    • You may pay the balance due within 120 days after your termination date
    • You may leave your payments and accrued interest on deposit with LACERA until you retire
    • You may revoke your election and receive a refund of your total payments and accrued interest
  19. What happens to my Plan E COLA purchase if I die prior to retirement?

    If you die before you retire, your eligible spouse, domestic partner, or minor children will receive a refund of your total payments and accrued interest. Plan E does not provide a survivor benefit if you die in active service.

  20. How will my Plan E Elective COLA purchase affect my survivors upon my death after retirement?

    Upon your death, your eligible surviving spouse, domestic partner, or minor children will receive a monthly survivor allowance which reflects any Plan E Elective COLA you purchased.

    If you die within 120 days after retirement and you have not completed payment of your contract, your spouse or domestic partner may NOT complete your contract to purchase Plan E Elective COLA. Only you may complete payment, and payment must be completed before your death. Your eligible spouse or domestic partner will receive a monthly survivor allowance, including a Plan E Elective COLA benefit prorated to reflect the portion you purchased.

  21. If I purchase Plan E Elective COLA and then decide to transfer prospectively to Plan D, what happens?

    If you transfer prospectively to contributory Plan D, you retain your Plan E service credit and your Plan E Elective COLA purchase contract remains in effect. Payroll deductions on your contract continue until the contract is completed. At retirement, the allowance you are entitled to under each Plan will be calculated separately, based on service credit earned under each Plan. Your monthly retirement allowance will reflect the total of the Plan D and Plan E amounts. (The Plan E Elective COLA you purchased becomes effective on April 1 following your retirement date.)

7/12/17