Cost of Living Adjustment ("COLA") for Fiscal Year 2025

Date: May 10, 2024


At today’s 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 2024 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, 2024.
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 2.0% 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 2.0%, each retiree group’s COLA bank may be able to increase the actual COLA received by the retiree up to a maximum of 2.0%, if that retiree group’s COLA bank has accrued enough funds from previous years where the published COLA was greater than 2.0%.
According to the CPI, the change in cost of living between December 31, 2022 and December 31, 2023 was 3.4% (rounded to the nearest 1/10th of a percent). This means that everyone who is retired or participating in DROP as of June 30, 2024 will receive the maximum 2.0% COLA increase to their pension benefit, and bank the additional 1.4%.

(Note: The two members in the City's 1981 plan tiers will have a 2.4% COLA for FY 2025.

This means that those who receive the fiscal year 2025 COLA and add the additional 1.4% to their COLA banks will be able to use the amount accrued in their COLA bank in future years, such that they would still receive a 2.0% increase even if the published COLA is less than 2.0%. 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 2024 and his monthly pension benefit is $5,000:

Table: Column 1 - Fiscal Year: 2025, 2026, 2027, 2028, 2029, 2030. Column 2 - Published COLA: 3.4%25, 1.4%25, 2.5%25, 1.2%25, 2.1%25, 1.8%25. Column 3 - Applied COLA: 2%25, 2%25, 2%25, 2%25, 2%25, 2%25. Column 4 - Increased Monthly Pension Benefit: $5,100; $5,202; $5,306; $5,412; $5,520; $5,630. Column 5 - Remaining COLA Bank: 1.4%25, 0.8%25, 1.3%25, 0.5%25, 0.6%25, 0.4%25.

You can see how the 1.4% addition to Sam’s COLA bank right off the bat can help ensure his benefit receives the maximum 2.0% increase in future years, when the published COLA is less than 2.0%. In the example above, we assumed that the published COLA applicable to fiscal years 2026-2030 was always between 1.2% and 2.5%. 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, in any years where the published COLA is greater than 2.0%, 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, 2024 – 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, it’s always worth noting when the published COLA is greater than 2.0%, as this may factor into your decision to retire or enter DROP before the beginning of the next fiscal year. (Note: You must enter DROP on the first day 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 2025 COLA, the applicable increase will be reflected in your July 2024 pension payment.

Document Under Categories: COLA, News Articles, Press Release