Cost-of-Living Adjustments (COLAs)
In addition to your TRS membership, you may be eligible for a Cost-of-Living Adjustment (COLA) if the cost of living increases as determined by the CPI.
The COLA offers you extra financial security because it ensures that your monthly retirement benefit will not lose its value as the economy changes.
To demonstrate the value of the COLAs that are awarded to retirees/beneficiaries, an example is provided below. The example is based on the following assumptions:
- The initial monthly benefit is $3,300
- COLAs are awarded in January and July of each calendar year.
- The COLAs awarded remain at 1.5%.
- The duration of the example is ten calendar years.
|Year||Monthly Benefit||Annual Benefit|
The chart demonstrates the value COLAs provide to offset increases in the cost of living as measured by the Consumer Price Index (CPI). After ten years under the assumptions, the monthly benefit amount has increased from $3,300 a month to $4,036. Therefore the annual benefit has increased from $40,495 to $49,523.
How Are COLAs Determined?
The TRS Board of Trustees is responsible for determining if a COLA increase is appropriate for retirees. COLAs are granted to eligible retirees on July 1 and January 1 of each year in accordance with Board policy (Administrative Rule 513-5-1-.16). A COLA is granted if the Current CPI index is greater than the retiree’s Base CPI index.
Base Index Calculation
The indexes used are computed based on the average Consumer Price Index (CPI) determined by the U.S. Bureau of Labor Statistics as follows:
- Current index is defined as the six-month period ending on July 1 or January 1 of each year.
- The Base index for a retiring member is defined as the six-month period ending on the July 1 or January 1 following the retiree’s date of retirement.
- The six-month period ending July 1 is defined as the prior November through April.
- The six-month period ending January 1 is defined as the prior May through October.
An example of the Base index calculation for a retiree is as follows:
|Period ending July 1, 2010|
|November 2009||216.33 CPI|
|December 2009||215.95 CPI|
|January 2010||216.69 CPI|
|February 2010||216.74 CPI|
|March 2010||217.63 CPI|
|April 2010||218.01 CPI|
|Total||1,301.35/6=216.89 Base Index|
When a retiree first becomes eligible to be considered for a COLA the Current CPI index is compared to that member’s Base CPI index. If the Current index is greater than the Base index a COLA of 1.5% is awarded. When a COLA is awarded the amount is always 1.5% regardless of the magnitude of the difference in the Current index and the Base Index. If the Current CPI index is lower than a specific member’s Base CPI index that member is not eligible to receive the COLA for that period.
As seen in the calculation of a specific Base index, retirees from different time periods will have different Base indexes. Therefore not all members will experience the same COLA awards. This is consistent with Board policy and consistent with the intent of providing a higher benefit to retirees to partially compensate for increases in the cost of living measured by the Consumer Price Index. While all retirees may not have the same award experience, once a COLA has been awarded, it becomes permanent.
Am I Eligible for a COLA?
Eligibility for a COLA is dependent on your retirement date. If the retirement date is between July 1st and December 1st, they become eligible for COLA consideration on the subsequent July 1st. If the date of retirement is between January 1st and June 1st, they become eligible for COLA consideration on the subsequent January 1st.
In those cases where a retiree selects a Retirement Option that leaves an ongoing monthly benefit to a beneficiary, the beneficiary will continue to be eligible for COLA awards under the same policy and conditions as the retiree.