The PSRS/PEERS Board of Trustees set the January 1, 2018 cost-of-living adjustment (COLA) for PSRS/PEERS benefit recipients, and amended the PSRS and PEERS Funding Policies at their November 3, 2017 meeting. The Funding Policy amendments included a change to the COLA Policy and the assumed rate of return on investments. Below is a list of frequently asked questions regarding the January 1, 2018 COLA and the changes to the COLA Policy.

- Q. What is the COLA for January 1, 2018?
- Q. On what was the 1.63% COLA based?
- Q. Who calculates the CPI?
- Q. Why is the CPI-U measured from July to June each year?
- Q. Does Social Security use the same measurement period as PSRS/PEERS to set their COLA?
- Q. Does Social Security use CPI-U to determine a COLA?
- Q. How will the COLA be calculated after January 1, 2018?
- Q. How many years can the CPI-U accumulate while it is between 0.0% and 2.0%?
- Q. Does the cumulative calculation change the measurement period of the CPI-U?
- Q. If the two-year cumulative CPI-U is 2.4%, will the COLA be 2.4% or 2.0%?
- Q. Does the cumulative calculation include years when the CPI-U is negative?
- Q. What is a retiree projected to receive annually for a COLA over their retirement?
- Q. Did the Board change any other components of the Funding Policy?

**Q. What is the COLA for January 1, 2018?**

A. The COLA for eligible benefit recipients effective January 1, 2018 is 1.63%.

**Q. On what was the 1.63% COLA based?**

A. The COLA equals the actual Consumer Price Index for Urban Consumers (CPI-U) for the fiscal year (school year) ended June 30, 2017.

**Q. Who calculates the CPI?**

A. The CPI (Consumer Price Indexes) program is administered by the Bureau of Labor Statistics of the United States Department of Labor. The CPI program produces monthly data on changes in the prices paid by consumers for a representative basket of goods and services. You can find additional information on the program at the following website: https://www.bls.gov/cpi/home.htm.

**Q. Why is the CPI-U measured from July to June each year?**

A. State regulations governing the administration of PSRS and PEERS indicate the measurement period is from July to June of each year. This happens to coincide with the fiscal year of PSRS/PEERS as well as the school year.

**Q. Does Social Security use the same measurement period as PSRS/PEERS to set their COLA?**

A. No. The Social Security Administration uses the measurement period of October to September each year. Social Security's measurement period coincides with the federal government's fiscal year.

**Q. Does Social Security use CPI-U to determine a COLA?**

A. Social Security uses the CPI program discussed above, but uses the CPI-W instead of CPI-U. The CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers, represents approximately 28% of the U.S. population, while the CPI-U used by PSRS/PEERS represents approximately 88% of the U.S. population.

**Q. How will the COLA be calculated after January 1, 2018?**

A. The Board adopted the following policy to determine COLAs starting with the one given on January 1, 2019. The only change from the prior policy occurs when the CPI-U is between 0.0% and 2.0%. The prior policy indicated if the CPI-U was between 0.0% and 2.0%, the COLA would be 0.0%. The new policy provides a 2.0% COLA when the CPI-U is between 0.0% and 2.0%, ** and** cumulatively reaches 2.0%.

CPI-U | COLA per Board Approved Funding Policy |
---|---|

Less than 0.0% | 0.0% |

0.0% - 2.0% | 0.0% when CPI-U is cumulatively below 2.0% |

0.0% - 2.0% | 2.0% when CPI-U cumulatively reaches 2.0% or more* |

2.0% - 5.0% | 2.0% |

over 5.0% | 5.0% |

*resets cumulative calculation after a COLA is provided |

**Q. How many years can the CPI-U accumulate while it is between 0.0% and 2.0%?**

A. The calculation accumulates each fiscal year until a COLA is provided. There is no limit on the number of years in the accumulation calculation. For instance, if the CPI-U was 0.25% in Year 1, 0.75% in Year 2, 0.83% in Year 3 and 0.28% in Year 4, a COLA of 2.0% would be provided in Year 4, because that's when the cumulative CPI-U reached 2.11%.

**Q. Does the cumulative calculation change the measurement period of the CPI-U?**

A. No. The CPI-U will still be measured annually from July to June and computed at the end of each fiscal year. The cumulative calculation is the accumulation of each fiscal year's change in CPI-U. The COLA provided will continue to be effective January 1, based on the annual calculations.

**Q. If the two-year cumulative CPI-U is 2.4%, will the COLA be 2.4% or 2.0%?**

A. The COLA granted will be 2.0%. In addition, when a COLA is granted, the cumulative calculation will be reset to zero, so the .4% in this example will not carry forward into the next COLA calculation period. The following chart provides examples of how the new COLA policy will be administered.

Year | CPI-U | Cumulative CPI-U | COLA Per Board Approved Funding Policy | Notes |
---|---|---|---|---|

1 | 1.63% | n/a | 1.63% | Prior to new policy. The Board of Trustees approved the actual CPI-U for January 1, 2018 with the above funding policy impacting the COLA calculations for January 1, 2019 and after. |

2 | 2.3% | 0.0% | 2.0% | COLA is 2.0% because CPI-U is between 2.0% - 5.0%. |

3 | 1.2% | 1.2% | 0.0% | No COLA, as CPI-U is between 0.0% - 2.0%, but cumulatively less than 2.0%. |

4 | 1.4% | 2.6% | 2.0% | COLA is 2.0%. CPI-U is between 0.0% - 2.0% and cumulatively above 2.0%. The cumulative calculation resets. |

5 | 1.8% | 1.8% | 0.0% | No COLA as CPI-U is between 0.0% - 2.0% but cumulatively less than 2.0%. Cumulative calculation was reset after 2.0% COLA granted in previous year. |

6 | 2.3% | 0.0% | 2.0% | COLA is 2.0% becasue CPI-U is between 2.0% - 5.0%. A 2.0% COLA has been granted therefore the cumulative calculation resets to zero. |

**Q. Does the cumulative calculation include years when the CPI-U is negative?**

A. Yes. The cumulative calculation is inclusive of a year when CPI-U is negative. The cumulative calculation is only when the CPI-U is below 2%.

**Q. What is a retiree projected to receive annually for a COLA over their retirement?**

A. The current COLA policy includes an actuarial assumption of 1.65%. This means the actuary is assuming retirees will receive an average of a 1.65% COLA each year during their retirement, subject to the 80% lifetime COLA cap. For more information on the COLA cap set by Missouri law visit the COLA section of our website, www.psrs-peers.org.

**Q. Did the Board change any other components of the Funding Policy?**

A. Yes. The Board approved the reduction of the assumed rate of return on investments from 7.75% to 7.6% due to the continued low interest rate and capital market environments.