Cost of Living Adjustment (“COLA”) for Fiscal Year 2024

Date: May 12, 2023


At its May 12, 2023 meeting, SDCERS’ Board of Administration approved the Cost of Living Adjustment (“COLA”) that will be applied to eligible SDCERS retirees’ (including active DROP participants) monthly pension benefit amount beginning with their July 2023 payment. Your pension benefit will receive a COLA for Fiscal Year 2024 if your retirement or DROP entry date is on or before June 30, 2023.
Per San Diego Municipal Code section 24.1505 and section 1301 of the Port and Airport Plans, the COLA is calculated every year based on the change in the cost of living between the two previous Decembers, as published by the Bureau of Labor Statistics Consumer Price Index (“CPI”), United States – All items. However, the maximum allowable increase in any given year is 2.0%.
In years where the COLA is greater than the maximum 2.0% (such as this year), the amount over 2% is added to what is called a “COLA bank.” A retiree’s COLA bank accumulates based on their fiscal year of retirement (or DROP entry), and each annual retiree group has its own COLA bank. In years that the CPI’s published COLA is less than 2%, each retiree group’s COLA bank may be able to increase the actual COLA received by the retiree up to a maximum of 2%, if that retiree group’s COLA bank has accrued enough funds from previous years where the published COLA was greater than 2%.
According to the CPI, the change in cost of living between December 31, 2021 and December 31, 2022 was 6.5% (rounded to the nearest 1/10th of a percent). This means that everyone who is retired or participating in DROP as of June 30, 2023 will receive the maximum 2% COLA increase to their pension benefit, and bank the additional 4.5%.*
*The two retirees who are in the 1981 retirement plan will receive a COLA increase of 3.6%.
This means that those who receive the fiscal year 2024 COLA and add the additional 4.5% to their COLA banks are guaranteed to receive a 2% COLA in fiscal years 2025 and 2026, at the very least (assuming we do not experience a negative COLA in either year). Let’s look at a theoretical scenario to really see the significance – but please remember that we have absolutely no way of predicting what the CPI’s published COLA will be in future years, and this is therefore very much a hypothetical example:
If Sam Diego retires or enters DROP in June of 2023 and his initial monthly pension benefit is $5,000:
Chart showing COLA bank example for fiscal years 2024 through 2030. Column 1 lists fiscal years 2024 - 2030. Column 2 shows hypothetical published COLAs for each fiscal year of 6.5%25, 1.7%25, 1.4%25, 2%25, 1.5%25, 1.8%25, and 1.3%25. Column 3 lists the applied COLA each fiscal year, which is 2%25 every year. Column 4 shows the increased monthly pension benefit for each fiscal year of $5,100; $5,202; $5,306; $5,412; $5,520; $5,630; and $5,743. Column 5 shows the remaining amount in the COLA bank at the beginning of each fiscal year: 4.5%25, 4.2%25, 3.6%25, 3.6%25, 3.1%25, 2.9%25, and 2.2%25.

You can see how the 4.5% addition to Sam’s COLA bank right off the bat can help ensure his benefit receives the maximum 2% increase in future years, when the published COLA is less than 2%. In the example above, we assumed that the published COLA applicable to fiscal years 2025-2030 was always between 1.3% and 2.0%. Note that if the published COLA is less in any given years, more would be subtracted from Sam’s COLA bank for those years. Conversely, if the published COLA is greater than 2.0% in any of the given years, then the amount above 2.0% would be once again added to his bank.
This article is not an attempt to persuade you to retire or enter DROP before July 1, 2023 – there are certainly other factors to consider, such as your age, upcoming salary increases, etc. (please review this article discussing factors to consider before deciding when to retire, or this article discussing considerations when deciding upon a DROP entry date). However, as this is the second highest published COLA we’ve seen since 1982, and it is very rare for a retiree to add such a large amount to their COLA bank in a single year, it’s worth noting and may factor into your decision to retire or enter DROP before July 1, 2023. (Note: You must enter DROP at the beginning of a pay period – please consult your payroll specialist to confirm your pay period start dates in June.)
If you are eligible to receive a fiscal year 2024 COLA, the applicable increase will be reflected in your July 2023 pension payment.

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