Determining the COLA

All eligible DROP participants, retired members, and beneficiaries are subject to an annual cost of living adjustment (“COLA”). The COLA takes effect on July 1 of every year and the adjustment is received accordingly in the July 31^st pension payment/DROP account deposit.

Pursuant to the City of Los Angeles Charter and Administrative Code, the LAFPP COLA is based on the annual change in the Consumer Price Index (CPI) as published by the U.S. Bureau of Labor Statistics. Specifically, we look at the change in the CPI for the Los Angeles-Long Beach-Anaheim area for the 12-month period beginning in March through February of the following year.

The LAFPP COLA is calculated differently from the COLA calculated by the Social Security Administration (SSA). Both COLAs are based on changes in the CPI determined by the Bureau of Labor Statistics; however, both the period measured and the population indexes used by SSA are different.

LAFPP determines eligibility requirements and how the COLA is applied based on the member’s tier.

• Tiers 1 and 2 have an uncapped COLA and are subject to a full COLA increase/decrease.
• Tiers 3 and 4 have a 3% COLA cap and cannot incur an increase/decrease beyond the cap.
• Tiers 5 and 6 have a 3% COLA cap and cannot incur an increase/decrease beyond the cap. In addition, they also have a COLA Bank to store any increases in the CPI greater than 3%, which can be applied in future years when the CPI is below 3%.

First-year retirees and DROP participants in Tiers 3-6 receive a COLA that is prorated by the number of complete months between their retirement effective date (or DROP entry date) and the following July 1.

What is a negative COLA?

In the event that the CPI is negative for the 12-month period used to measure the COLA (i.e., deflation), the LAFPP COLA would also be negative and the monthly pension benefit would be decreased by the negative COLA percentage. Any decrease is subject to the same provisions as an increase. It cannot exceed the 3% cap for Tiers 3-6, and Tiers 5 and 6 may use their COLA banks to offset the decrease, if a balance is available. Tiers 1 and 2 do not have a COLA cap and would incur the full decrease.

For all members, it is important to note that in the event of a negative COLA, the pension amount will not be reduced to less than the member’s or qualified survivor’s original pension amount.

Consumer Price Index/Bureau of Labor Statistics

The Bureau of Labor Statistics has made several changes to the CPI over the years and the most significant changes were last made in 2018. 

For more information, you may visit the Bureau of Labor Statistics website at www.bls.gov/cpi and look for Regional Resources under CPI Data to find the Los Angeles area.  You may also review the step-by-step instructions on How to Access CPI Data.

Questions?

Retirement Services Section at (213) 279-3125 or toll-free at (844) 88-LAFPP.

For questions about the CPI, please visit the Bureau of Labor Statistics’ website, or call (202) 691-7000.