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A Primer on the COLA (from MTA Today June/July 2010)

The MTA receives many inquiries about cost-of-living adjustments from newly retired

members and members who are considering retirement. The following information is crucial to

understanding how COLAs are computed and paid out.

In January of each year, an actuary employed by the Public Employee Retirement Administration

Commission files a report with the Legislature on any increase in the U.S. Consumer Price Index. It may

include a recommendation that the Legislature enact a cost-of-living increase in retirement allowances.

If the Legislature determines that a cost-of-living increase is required, it establishes the amount

of the increase, which cannot exceed 3 percent. It is important to understand that the cost-of-living

adjustment is only applied to a maximum of $12,000, no matter how much a retiree’s pension might be.

For members of the state and teachers’ retirement systems, this increase — up to 3 percent of the

first $12,000 in benefits — is then added to the retirement allowances of those retirees or beneficiaries

who were receiving pensions as of June 30 of the preceding year. The COLA increases are paid from the

investment income account of the state and teachers’ retirement systems.

Retirement systems other than the state and teachers’ systems must adopt G.L. c.32, Section 103,

in order to establish a cost-of-living adjustment for their members and beneficiaries. If the local system

adopts the recommended COLA, as is the case with the state and teachers’ systems, it applies to only

the first $12,000 of one’s retirement allowance. It is funded from the investment income account of

the system. As is true for the state and teachers’ systems, only those members receiving a retirement

allowance as of June 30 of the prior year will receive COLAs.

It is important to understand that the fiscal year determines the schedule for COLA eligibility; the

fiscal year runs from July 1 through June 30. For example, if someone retired on July 5, 2010, and the

Legislature approves a COLA in January 2011, that person would not be eligible for this particular

COLA because he or she was not receiving a retirement allowance on June 30, 2010.

The MTA continues to advocate for an increase in the COLA that is received by its members.

The MTA Division of Governmental Services proposes and monitors legislation that deals with

members’ pensions, as well as with the COLA. The MTA legislative chart can be viewed at

http://links.massteacher.org/legislation.