Annual Cost of Living Adjustment (COLA)
Cost Of Living Adjustment (COLA) Frequently Asked Questions and Background Information
This page concerns your COLA to be granted on July 1, 2015 and the ending COLA Bank balances for retirees and Active Deferred Retirement Option Plan (DROP) members. All information pertaining to retirees also applies to Active DROP members, whose retirement benefits are accumulating in their DROP accounts.
What is a COLA?
The San Diego Municipal Code, Section 24.1505, (for City retirees) and the Plan Agreements (for Port and Airport retirees) each provide for an annual cost of living adjustment effective every July 1. The COLA is granted based upon the annual inflation change reported in the federal government’s Consumer Price Index (CPI) for the preceding calendar year. Each July 1, retirees and Active DROP members can receive a COLA based on the CPI of up to a maximum of 2.0%.
What is a COLA bank?
If the annual CPI change is greater than 2.0%, the excess percentage is added to member COLA banks. The banks vary for retirees depending on your year of retirement. Banks can grow over the years, and can also be reduced or depleted.
What if the COLA is less than 2%?
When the CPI percentage is less than 2.0%, the difference is withdrawn from the COLA bank up to the percentage available in order to still provide a 2.0% COLA increase. COLA banks can never be withdrawn below zero. It’s important to remember that COLA banks are accumulated based on the fiscal year of retirement or DROP entry, and are different for each annual retiree group.
What has been the trend over the last several years?
In four of six calendar years from 2008 to 2013 (the years affecting the COLA’s from July 1, 2009 to July 1, 2014), the annual change in the CPI was less than 2.0%. For those who retired or entered DROP between July 1, 2008 and June 30, 2014, your COLA bank has not always been large enough to supplement the CPI, resulting in a COLA increase of less than 2.0% in one or more of those years. For those who retired before July 1, 2008, you have received full 2.0% COLA’s for all of these years, but your COLA banks have also been drawn down.
What was last year’s CPI change?
For the year-ending December 31, 2014, the CPI increase was 0.8%, marking the fifth year out of the last seven that CPI was less than 2.0%. Provided you had a COLA bank entering 2014 that was at least 1.2%, you will again receive a full 2.0% COLA this July 1, 2015. However, if your prior COLA bank was less than 1.2%, the July 1, 2015 COLA granted will be less than 2.0% and your ending COLA bank balance will be zero.
How is the COLA calculated?
Below is a table that illustrates the July 1, 2015 percentage COLA increase and the calculation of the ending COLA bank balance.
| |
(1) |
(2) |
(3) |
(4) |
(5) |
| If you retired on or after: |
But on or before: |
Beginning COLA Bank |
CPI change for CY 2014 |
% Withdrawn from COLA Bank |
COLA increase on 7/1/2015 (Column 2 plus 3) |
Ending COLA Bank
(Column 1 minus 3) |
| All retirees on or before 6/30/2006 |
Varies by year at 1.3% or more |
0.8% |
1.2% |
2.0% |
Varies by year at 1.3% or more |
| 7/1/2006 |
6/30/2007 |
1.1 |
0.8 |
1.1 |
1.9 |
0.0 |
| 7/1/2007 |
6/30/2008 |
0.6 |
0.8 |
0.6 |
1.4 |
0.0 |
| 7/1/2008 |
6/30/2009 |
0.4 |
0.8 |
0.4 |
1.2 |
0.0 |
| 7/1/2009 |
6/30/2010 |
0.4 |
0.8 |
0.4 |
1.2 |
0.0 |
| 7/1/2010 |
6/30/2011 |
0.2 |
0.8 |
0.2 |
1.0 |
0.0 |
| 7/1/2011 |
6/30/2012 |
0.2 |
0.8 |
0.2 |
1.0 |
0.0 |
| 7/1/2012 |
6/30/2013 |
0.0 |
0.8 |
0.0 |
0.8 |
0.0 |
| 7/1/2013 |
6/30/2014 |
0.0 |
0.8 |
0.0 |
0.8 |
0.0 |
| 7/1/2014 |
6/30/2015 |
0.0 |
0.8 |
0.0 |
0.8 |
0.0 |
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Please note that all groups who retired on or after July 1, 2006 will be receiving a COLA increase for 2015 of less than 2.0% and will also have an ending COLA bank balance for future years of zero. At July 1, 2016, there will be no COLA bank balance available to fill the gap to grant a 2.0% COLA.
What will happen next year if the 2015 CPI is again less than 2.0%?
For July 1, 2016, a percentage will again be withdrawn from the available COLA bank in order to grant up to a 2.0%. But, if the COLA bank balance is zero, then the COLA will be equal to the CPI percentage.
What would happen if CPI is a negative percentage?
If CPI is a negative percentage, the COLA of up to 2.0% will still be granted depending upon the balance in your COLA bank. In this case, more than 2.0% would be withdrawn. If the COLA bank balance is already at zero, then it is possible for a negative CPI to actually reduce your monthly pension. The maximum that a negative CPI can reduce a pension is also 2.0% in any one year. However, in no case can the negative CPI reduce a pension below the original pension amount at the date of retirement.
It is important to note that since the inception of the 2.0% COLA procedure in 1971, no calendar year has ever ended with CPI as a negative percentage. Nor have any annual pensions ever been reduced because of a negative COLA. However, in these uncertain times of very low inflation, and with all retiree groups on or after July 1, 2006 about to have an ending COLA bank balance of zero, SDCERS wants to make you aware of the possibilities of what could happen to the annual COLA in 2016 and thereafter.
Related documents may be accessed directly, below: