Cost of living adjustment

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A Cost of Living Adjustment or cost of living adjustment (COLA) is a percent change in funding amount to beneficiaries of a retirement system in order to adjust benefits to counteract the effects of inflation.[1]

Certain states have started capping receivers’ COLA annual percent increase, limiting at what age they can start receiving them, and defining more stringently what assets are eligible for these increases. Rhode Island included in its FY2011 budget a limit on the COLA provided future retirees to the pensioner's first $35,000 in benefits and require eligible individuals to wait until age 65 to begin collecting the annual COLAs. Other states that have recently limited cost of living adjustments include Colorado, Maryland, Michigan, Minnesota and South Dakota.[2]

A Colorado law passed in 2010 reduced the raise that people who are already retired get in their pension checks each year, capping the cost-of-living adjustment at 2% instead of the 3.5 percent raise that many of them were getting. Some retirees and those eligible to retire then filed suit against the state to keep all of the annual cost-of-living increases they anticipated receiving.[2]