P 3 Actuaries you can understand 1 Annual COLA for April 2006 February 15, 2006 P

P 3 Actuaries you can understand 2 Outline CERL Guidance Consumer Price Index COLA Calculation COLA Bank Inflation Comparisons

P 3 Actuaries you can understand 3 COLA The board shall before April 1 of each year determine whether there has been an increase or decrease in the cost of living as provided in this section. Notwithstanding Section or any other provision of this chapter (commencing with Section 31450), every retirement allowance, optional death allowance, or annual death allowance payable to or on account of any member, of this system or a superseded system, who retires or dies or who has retired or died shall, as of April 1st of each year, be increased or decreased by a percentage of the total allowance then being received found by the board to approximate to the nearest one- half of 1 percent the percentage of annual increase or decrease in the cost of living as of January 1st of each year as shown by the then current Bureau of Labor Statistics Consumer Price Index for All Urban Consumers for the area in which the county seat is situated, but such change shall not exceed 2 percent per year ;…

P 3 Actuaries you can understand 4 COLA Bank ( cont ). … however, the amount of any cost- of-living increase or decrease in any year which is not met by the maximum annual change of 2 percent in allowances shall be accumulated to be met by increases or decreases in allowances in future years; except that no decrease shall reduce the allowance below the amount being received by the member or his beneficiary on the effective date of the allowance or the application of this article, whichever is later.

P 3 Actuaries you can understand 5 Consumer Price Index US City Average –Northeast Urban –Midwest Urban –South Urban –West Urban Anchorage, AK Denver-Boulder-Greeley, CO Honolulu, HI Los Angeles-Riverside-Orange County, CA Phoenix-Mesa, AZ Portland-Salem, OR-WA San Diego, CA San Francisco-Oakland-San Jose, CA Seattle-Tacoma-Bremerton, WA

P 3 Actuaries you can understand 6 Consumer Price Index All Urban Consumers San Francisco-Oakland-San Jose

P 3 Actuaries you can understand 7 COLA Calculation Step 1 –Annual Average 2005 / Annual Average 2004 –202.7 / 198.8= 1.96% Step 2 –Round to nearest ½% –1.96% rounds to 2.00%

P 3 Actuaries you can understand 8 COLA BANK Retirement during twelve-month period ended April 1 Accumulated COLA Bank April 1, 2005 Decrease in COLA Bank Accumulated COLA Bank April 1, or earlier 69.5%(1.0%)68.5% %(1.0%)68.0% %(1.0%)65.0% %(1.0%)58.0% %(1.0%)51.0% %(1.0%)48.5% %(1.0%)44.0% %(1.0%)37.5% %(1.0%)32.0%

P 3 Actuaries you can understand 9 COLA BANK Retirement during twelve-month period ended April 1 Accumulated COLA Bank April 1, 2005 Decrease in COLA Bank Accumulated COLA Bank April 1, %(1.0%)20.0% %(1.0%)10.0% %(1.0%)7.5% %(1.0%)7.5% %(1.0%)5.0% %(1.0%)4.0% %(1.0%)4.0% %(1.0%)3.5% %(1.0%)2.0% %(1.0%)0.0%

P 3 Actuaries you can understand 10 COLA BANK Retirement during twelve-month period ended April 1 Accumulated COLA Bank April 1, 2005 Decrease in COLA Bank Accumulated COLA Bank April 1, %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% %(1.0%)0.0% 2001 and later0.0%(1.0%)0.0%

P 3 Actuaries you can understand 11 COLA Retirement during twelve-month period ended April 1 This Year’s COLA Use of COLA Bank COLA Using Bank 1998 or earlier2.0%1.0%3.0% %0.5%2.5% %0.5%2.5% 2001 and later2.0%0.0%2.0%

P 3 Actuaries you can understand 12 CPI Comparison 2005 RegionInflation SF1.96% LA4.45% West3.06% US3.39%

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P 3 Actuaries you can understand 16 National Inflation Components Category 2005 Inflation Rate 2004 Relative Importance Index All Items3.4% Housing3.3% Transportation6.6% Food and Beverages2.5% Medical Care4.2%6.132 Apparel(0.7)%3.841 Recreation0.7%5.733 Education and Communication1.9%5.846 Other Goods and Services2.9%3.750

P 3 Actuaries you can understand 17 Questions