Re(7): cola IP: 97.102.136.159 Posted on November 17, 2008 at 08:44:21 PM by royhall
Hi ya'll,
I've forgotten most of what I had known about this topic but as best as I can recall the Bureau of Labor Statistics computes the CPI monthly from Jan. to Dec. You can see this on their web site and you can see the graph which reports monthly,semi-annually, and annually. When I have crunched the numbers in the past, I had to add the increases from month to month from Oct thru Sept and divide by 12 to get the average that will be used by the pension board. January through December will not work. You can then round the result and add it to the COLA percentage that was reported to you last year. As an example, if you were told that you were receiving (or going to receive) 105 percent of your base pension in last years letter, just add the number crunching result, if we assume 5.3% for the period described above, to last years amount.... 105 + 5 = 110%. And as before, that would be 110% of your base pension.
This method is what the board calls the cummulative method and is what they use thanks to Loper. I still argue that the contract describes a compounding method. If the Bureau of Labor Statistics reports that the market basket items increased 5% this past year and your base went up 5% are you really keeping pace? Only if you retired last year!
Assume that your base is X and you just retired. Assume the CPI and COLA is 5%. Your new pension amount is X+5% the following year. This is as close to compounding as you are going to get. Your second year pension under this system will look like this X +(.05X + .05X) or X+10%. This is cummulative. Compounding would look like this, X+5%+5%. Substituting 100 for X one can see the difference. Cummulative method: 1st year,base + cola = 100 + 5 = 105, 2nd year = 100+10=110. Compounding method: 1st year 100+5=105 Notice that its the same as in the previous example but...2nd year, 105 + 5% of 105 = 110.25. The difference is simply this, if the CPI goes up 5% from one year to the next shouldn't your pension check go up 5%? If your base is increased 5% it is not the same.
Of interest is the items that are in the Basket, Health insurance is no longer counted. I hope the below link will take to to the chart used.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I did the math and believe that the CPI data indicate an increase of .0493 - Oct 2007 through Sep 2008. If correct, our COLA should be approximately 5%. However this will differ on an individual basis depending on whether you were rounded down or up last year.
I wish more people would get interested in the COLA section of our contract especially since the past boards depended so trustingly on Loper.
Roy
Replies:
Re(8): cola - By LARRY VINCENTNovember 25, 2008 at 01:06:55 AM
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