Cost-of-Living Adjustment Must Be Greater Than Zero

Section 215(i)(1) of the Social Security Act defines the calendar quarters that are to be used in the calculation of a Cost-of-Living Adjustment (COLA). In particular, the Act defines a "cost-of-living computation quarter" to mean a third calendar quarter with respect to which the Consumer Price Index (CPI) has increased relative to the last such quarter. Simply put, this means that, if a COLA becomes effective in any year, the COLA must be greater than zero.

If there is no COLA in one year, how is the next COLA calculated?
Assuming Congress does not intervene by enacting a general benefit increase, the next COLA would become effective in December of the next year that has a third-quarter average CPI greater than the average for the last cost-of-living computation quarter.

For example, because there is no COLA effective for December 2009, the next COLA (2010 or later) will use the average CPI for the last cost-of-living computation quarter—the third quarter of 2008—as the base. That average is 215.495, so any future third-quarter average CPI must exceed 215.495 for that quarter to be a cost-of-living computation quarter. To further illustrate, if the third-quarter average for 2010 were 1.0 percent greater than 215.495, the COLA effective for December 2010 would be 1.0 percent.