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COLA Cap
Is there a "cap" on the amount of COLA increases retirees receive each year, given the economy warrants it?
The maximum increase for the COLA in a single year is 5%.
COLAs for most retirees are equal to 80% of the percentage increase in the average Consumer Price Index (CPI) from one year to the next, with a maximum of 5% (minimum of 0%).
You may have read information about another type of COLA Cap: Members employed before August 28, 1997, who retired under MSEP, have a COLA cap. Retirees in this situation, get a guaranteed COLA of at least 4% each year (maximum 5%) until they reach the COLA cap. They reach the COLA cap when the sum of their COLAs equals 65% of their initial benefit amount.
Example:
$1,000 (Initial Base Benefit) x .65 (65%) = $ 650 (COLA Cap)
- After reaching the COLA cap, annual COLAs will be equal to 80% of the percentage increase in the average Consumer Price Index (CPI) from one year to the next. The minimum is 0% and the maximum is 5%. In other words, retirees eligible for the guaranteed 4% COLA continue receiving a COLA after reaching the COLA cap, however, it isn’t guaranteed at any rate.
- Typically, members reach the COLA cap around 12 to 13 years after retirement.
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