Internal Variable Annuities - 2022 Cost of Living Adjustment to the Defined Benefit Minimum
Internal Variable Annuities -
2022 Cost of Living Adjustment to the Defined Benefit Minimum
With the current economic situation, inflation and changes to cost of living are top of mind. For pensioners who have elected an Internal Variable Annuity (IVA), such discussion may also raise questions about the calculation of Cost of Living Adjustments (COLA).
2022 Cost of Living Adjustment:
COLA is applicable to the defined benefit minimum, where a 3.5% annuity was elected at retirement.
The July 1, 2022 cost of living adjustment to the defined benefit minimum is: 3.0%.
In summary:
- The percentage change in the average CPI over the past year was 4.5%
- Cost of living (COLA) adjustments are capped at a maximum of 3%.
- Plan members will therefore receive 1.5% carry-forward for subsequent years.
Calculation of COLA adjustments:
Cost of living adjustments are made in reference to the Consumer Price Index (CPI).
Per the Plan document, the maximum cost of living adjustment in a year is 3%. Should the calculated COLA exceed 3%, any excess is carried forward and applied to the next year for which the COLA calculation is lower than 3%.
Adjustments are based on an ‘averaging’ method, taking into account the percentage change in average CPI for the 12 month period ending March 31, and the average CPI in the 12 month period prior.
Average CPI from April 2021 to March 2022: 143.63
Average CPI from April 2020 to March 2021: 137.45
(143.63 – 137.45) / 137.45 = 4.5%
Please note that COLA is pro-rated for members retiring part-way through the year.
More information on annual adjustments can be found on page 6 of Understanding the Plan