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Plan 1 Optional COLA

If you’re a Plan 1 member of the Public Employees’ Retirement System (PERS) or Teachers’ Retirement System (TRS), you can choose to reduce your initial benefit and receive an annual cost-of-living adjustment. This adjustment is called an Optional COLA and is based on the Consumer Price Index (CPI).1 The Optional COLA was created by the legislature in 1987.

If you’re interested in comparing your benefit with and without the Optional COLA, please try our Optional COLA Calculator. The calculator uses Microsoft Excel Version 97-2003 or later.

The calculator provides a simple estimate that does not include a comparison of potential interest (for example, if you didn’t elect the Optional COLA, and instead invested the difference between the monthly benefits). The calculator also doesn’t include the other COLAs you may be eligible for or the complexity of COLA Banking. You may want to consider these as you make your decision. For some, talking with a financial planner will be helpful.

If you have questions about the Optional COLA, visit our Optional COLA Frequently Asked Questions. If you don’t have Microsoft Excel, but want to use the calculator, we have staff available to help. Contact us for help creating or interpreting the calculator’s results.

What to expect

After you enter your information and assumption about what will happen with inflation, the calculator displays your monthly and cumulative benefit at three milestones:

Benefit Milestones
Initial retirement benefitYou can compare your benefit with or without the Optional COLA when you first retire.
Monthly benefits equalizeOptional COLA benefits start out lower and grow based on inflation. The calculator highlights how old you will be when the Optional COLA monthly benefit “catches up” with the monthly benefit amount you would have received if you had not elected the Optional COLA.
Cumulative benefits equalizeThe calculator highlights how old you will be when the Optional COLA cumulative benefit “catches up” with the cumulative benefit amount you would have received if you had not elected the Optional COLA.
Your Feedback

DRS would like to include your feedback as we consider future enhancements to the Optional COLA Calculator. We would also appreciate your input on the Frequently Asked Questions. To provide feedback, please contact us.

1 The Optional COLA’s maximum CPI adjustment is three percent annually.

Frequently Asked Questions

Last Updated May 2017

1. How does the Optional COLA work?
If you choose the Plan 1 Optional Cost-of-Living Adjustment (COLA), your benefit is initially reduced, but you’ll receive an annual adjustment to your monthly benefit based on the Consumer Price Index (CPI), which can be positive or negative. This annual adjustment cannot increase or decrease your benefit by more than 3 percent of your previous year’s benefit, and it can never reduce your benefit to less than your initial benefit amount. The Optional COLA is a choice available to Plan 1 members of the Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS), only at the time you apply for retirement and is permanent.
2. Why was the Optional COLA created?
Created in 1987, the Optional COLA was designed to help keep retirement benefits in step with the changing economy. If inflation raises consumer prices, the COLA will assist in maintaining the purchasing power of your benefits. If inflation lowers, the COLA will normally decrease the benefit.
3. What information do I need to use the Optional COLA Calculator?

If you’ve received a Retirement Benefit Estimate, use the numbers and information it provided. It includes everything you’ll need. If you don’t have one, you’ll need your:

  • System/Plan,
  • birth date,
  • expected retirement date, and
  • monthly retirement benefit without Optional COLA (if you don’t know this, visit your online account to create an estimate based on DRS’ records.

In addition, you will also need:

  • COLA inflation assumption (although inflation fluctuates from year to year, you’ll need to assume an average ranging from zero to 3 percent. To learn about the history of inflation, you can review CPI history at the Office of the State Actuary (OSA)).
4. How is the Optional COLA increase calculated?

The Optional COLA increase is calculated by multiplying your gross monthly benefit1 by the COLA rates based on the year you retired for a maximum of 3 percent.

Example:

$1,500 (Benefit) X .44% (July 1, 2010 COLA2) = $6.60 (Increase to benefit) For a new monthly benefit of $1,506.60

5. How does the Optional COLA impact my initial benefit?

If you choose the Optional COLA your initial benefit amount is reduced. The size of the reduction is based on the estimated cost to pay the COLA over your expected lifetime. In this way, your benefit reduction is paying for the COLA.

The cost of the COLA is determined by a Plan 1 Optional COLA Factor provided by The Office of the State Actuary (OSA). The factors are based on assumptions regarding life expectancies, inflation and interest rates. If you have additional questions about these assumptions, contact the Office of the State Actuary. The Plan 1 Optional COLA Factors are provided in the Optional COLA Calculator.

6. When do I receive the Optional COLA?
You will receive the Optional COLA every July after you’ve been retired one full year.
7. Is this my only chance at having COLA increases during retirement?
If you receive a benefit that falls below a minimum level, you may be eligible for an annual adjustment. Learn more at our COLA Frequently Asked Questions page.
8. If I choose the Optional COLA, how many years will it take before I recover the cost of this benefit?
There isn’t a simple answer that applies to everyone. We hope you’ll try the Optional COLA Calculator to get an estimate of your situation.
9. What is the Consumer Price Index (CPI)?
The CPI is a measure of the changes in prices of all goods and services. The CPI we use, identified by the Washington State Legislature, is the Seattle, Tacoma, Bremerton CPI-W. This CPI is maintained by the U.S. Bureau of Labor Statistics. Learn more about CPI at the Office of the State Actuary.
10. If the CPI rate is negative, will my benefit be reduced?
When the CPI rate is negative, your benefit will decrease equally, unless you have COLA Banking or you hit your initial monthly benefit amount. Your benefits can’t fall below your initial monthly benefit amount. For example, let’s say your initial benefit is $1,500. Your first COLA is positive one percent and your benefit amount increases to $1,515. Then in the second year, the CPI rate is negative two percent, but your COLA is only negative one percent, because your benefit cannot fall below the initial benefit amount of $1,500.
11. How do I know if choosing the Optional COLA is the best choice for me?

Only you are able to decide. The Optional COLA Calculator is a good place to start. Consulting a financial planner is also something you might want to consider. Once you’ve looked at the data provided by the calculator, think about these questions:

  • Can you comfortably live on the reduced benefit at the time of retirement?
  • How long do you think you will live?
  • What will the future rate of inflation be?
  • What interest could you earn, if you didn’t choose the Optional COLA, and invested the difference instead?
12. Why is my first Optional COLA delayed by two calendar years?
You must be retired for a full year when the Optional COLA is applied in July. An August 2008 retiree had only 11 months in retirement by July 2009. So the first Optional COLA was applied in July 2010.
13. I read that this calculator doesn’t include COLA Banking. What is COLA Banking?

The maximum Optional COLA increase is three percent. In years where the CPI increase is more than three percent, the difference is banked for future years. The banked percentage is used in years when the COLA is less than the maximum. For example, let’s say in year one the CPI was 6.48 percent, and you received a three percent increase and banked the remaining 3.48 percent. In year two the CPI was negative .27 percent. So in July of year two you used that banked amount and ended with a positive three percent COLA, and still had .21 percent in the bank for future years.

There is another time when COLA banking is useful. As explained in the last question, there is a period when members wait for the COLA to begin. The delay is dependent on your retirement date. Using the example from above, let’s say you retired in August of year one. You’re not eligible to receive the Optional COLA in July of year two, so the entire 6.48 percent was banked. In July of year three, when the CPI was negative .27 percent, you would receive a full three percent COLA, leaving 3.21 percent in the bank for future years.

The calculator may underestimate the long-term Optional COLA benefit by up to one year’s inflation rate, because it does not include COLA Banking.

14. I have a retroactive retirement date; can I use the calculator?
You can use the calculator for a retroactive retirement, but the Optional COLA factors change periodically so the results may not be accurate. To ensure you receive the most accurate estimate, please contact us.
15. Will the Optional COLA continue to my survivor when I die?
Yes. If you choose a survivor option at retirement, your survivor will continue to receive annual Optional COLA adjustments every July.
16. I don’t have Microsoft Excel, but I’d like to use the calculator. What should I do?
We have staff available to help. Contact us for help creating or interpreting the calculator’s results.

References and Resources

1 The monthly benefit used in this calculation is your initial benefit plus any Optional COLA increases. If you have Uniform COLA increases, those must be removed from the benefit before the calculation of the COLA increase.
2 This COLA increase percentage is for a member who retired between January 1, 2009 and July 1, 2009. This percentage could vary depending on when you retire.

Updating Your Address and/or Name

Retirees, inactive members, beneficiaries and legal-order payees: You can update your address from your online retirement account. Just select “Address” from the welcome screen. If you need to update your name, fill out and send in a printed form as well as a copy of documentation showing the change.

Active members: Update your name and/or address through your employer. That new information will soon appear in your online retirement account.

Direct Deposit

Set up and manage direct deposit of your benefit payments from your online retirement account. Just follow the “Direct Deposit” directions under “My Account” in the navigation menu.

(If you prefer to fill out and mail in a printed form, select this link.)

Beneficiary Designation

Members, you can update your beneficiary information from your online retirement account. Select “My Account” in the navigation menu and then “View/Edit” beside “Beneficiary.”

(If you prefer to fill out and mail in a printed form, select this link.)