CalPERS

The COLA Fact Sheet

  • The Retirement Law provides for the payment of an annual cost-of-living adjustment (COLA) to be paid each May. However, your COLA cannot be greater than the actual national rate of inflation.
  • The law requires that CalPERS use of the All Urban Consumer Price Index, U.S. City (Annual) Average, 1967 Base Year to calculate yearly inflation figures (supplied by the U.S. Department of Labor's Bureau of Labor Statistics).
    If you'd like to review these statistics, you can access them on the Department of Labor website.
  • Your COLA allowance can equal (but not exceed) the rate of inflation using the U.S. City (Annual) Average.
  • Your annual adjustment is limited to the lesser of two compounded numbers - the rate of inflation or the cost-of-living adjustment your employer has contracted for.
  • COLA is paid on the May 1st warrant each year. The rate of inflation in the calculation represents the Consumer Price Index (CPI) for the previous calendar year.
  • Currently, most State retirees, and all school retirees, have their COLA limited to a maximum of 2 percent (compounded) annually. Public agencies can contract for 2, 3, 4, or 5 percent cost-of-living adjustments.
  • Many retirees assume that we apply a 2 percent figure to your gross allowance each May. Rather, what's done is that a compounded percentage is applied against a figure referred to as your base allowance. Your base allowance is generally the gross amount you received at the time of your retirement.
  • To determine the applicable COLA percentage to apply against the base, CalPERS compares the actual rate of inflation (based on the U.S. City (Annual) Average) to your 2 percent adjustment, compounds each number, and then keeps a running total each year. Remember, we are making a yearly comparison between your 2 percent adjustment and inflation, compounding each number, and applying the lesser of the two figures against a set base.

To make it easier to understand, review the following example.

If you retired in 2011, you received your first COLA in 2013. You have a base or gross allowance of $1,000 per month.

Year COLA COLA Compounded Inflation Rate Inflation Compounded
2013 2% 2.0% 2.07% 2.07%
2014 2% 4.04% 1.50% 3.56%

 

Inflation compounded (2.07 percent) was greater than the COLA compounded, so you’ll receive the lesser amount. Remember that your COLA amount cannot be greater than the actual national rate of inflation. The lesser of the two compounded amounts is used (2.0 percent vs. 2.07 percent) and this is how the calculation is done:

2013 COLA
Base Allowance COLA Factor New COLA
$1,000 X .0200 or 2.00% = $20.00

 

Base Allowance New COLA Gross Allowance
$1,000 + $20.00 = $1,020

 

During the second year of COLA eligibility, inflation for the previous calendar year is 1.50%. Remember that your COLA amount cannot be greater than the actual national rate of inflation. The lesser of the two compounded amounts is used (4.04 percent vs. 3.56 percent) and this is how the calculation looks:

2014 COLA
Base Allowance COLA Factor New COLA
$1,000 X .0356 or 3.56% = $35.60

Base Allowance New COLA Gross Allowance
$1,000 + $35.60 = $1,035.60

 

The procedure is the same every year. We review the charts, take the lesser of the two compounded figures in any year, and multiply the lesser figure by the base to arrive at the cost-of-living adjustment for that year.

Dated: 04-09-2014