ERSRI Retirement Options: COLA Capped at 3.5%, Base Indexed Yearly

Updated October 2, 2026. Quick answer: Under the Rhode Island statute that governs the Employees’ Retirement System of Rhode Island (ERSRI), a retiree may take the full allowance for life or a lesser, actuarially reduced allowance under Option 1 (the whole lesser allowance continues to a nominee) or Option 2 (one-half continues). A member who leaves before retiring and takes a refund is paid accumulated contributions without interest and forfeits accrued rights and service credits, though a returning member may restore them by repaying the refund plus regular interest; a member who leaves with five years of contributory service (ten for those leaving on or before June 30, 2012) and takes no refund keeps a right to a service allowance at the age set in section 36-10-9, under section 36-10-11. An Option 1 or Option 2 election can be revoked or modified after retirement unless the named beneficiary has been divorced from the member (section 36-10-19). The current COLA formula is capped at 3.5% and applies to the first $25,855 of allowance, as indexed. This page is built from the statute, not the member handbook.

What this page covers and what it does not

This page is built from three sections of the Rhode Island General Laws, not from the member handbook or any other publication of the retirement system. The system’s own site could not be read for this page, so the handbook was not read. The three sections are 36-10-18 (optional benefits), 36-10-8 (refund of contributions and repayment) and 36-10-35 (additional benefits payable to retired employees, which is where the cost-of-living adjustment sits). A statute states the rule but not the forms, deadlines for paperwork or the actuarial factors, so the system’s handbook and a member statement settle the practical details.

The decisions covered are the retirement option election, taking or leaving a refund, repaying a refund after returning to work, and the cost-of-living adjustment (COLA). The three sections do not themselves cover vesting, the benefit formula, retirement ages or any lump sum retirement payment. Other sections of the same chapter do: section 36-10-9 sets the ages at which a member may retire, section 36-10-10 sets the allowance, and section 36-10-11 vests a right to a service allowance in a member who leaves without taking a refund. This page quotes only that last point, below, and does not work the age or the allowance out. For the state tax side, see Rhode Island retirement taxes and does Rhode Island tax pensions.

The election at retirement: full allowance, Option 1 or Option 2

Section 36-10-18 uses the word beneficiary for the person who receives the retirement allowance, which on the statute’s wording is the retiring member. It gives that person a first choice: “may elect to receive the benefit in a retirement allowance, payable throughout life”. The alternative: “the actuarial equivalent, at that time, of the beneficiary’s retirement allowance in a lesser retirement allowance as determined by actuarial calculation”. In plain terms, the retiree trades a smaller monthly amount for a continuing payment to someone else after death.

The two options differ in how much continues. Under Option 1, “the beneficiary’s lesser retirement allowance shall be continued throughout the life of and paid to such person having an insurable interest in the beneficiary’s life, as the beneficiary, the beneficiary’s spouse or domestic partner, or the beneficiary’s guardian so electing, shall nominate by written designation duly acknowledged and filed with the retirement board at the time of his or her retirement.” The statute also lets the beneficiary’s spouse or domestic partner, or, if there is no spouse or domestic partner, a guardian of the beneficiary’s estate, make the election for a beneficiary who is an incompetent (section 36-10-18(a)). Under Option 2, “one-half (½) of the beneficiary’s lesser retirement allowance shall be continued throughout the life of and paid to such person”. Option 1 therefore keeps the survivor’s payment equal to the retiree’s reduced one, and Option 2 cuts it in half. The statute states no reduction percentages, only that the lesser allowance is set by actuarial calculation, so the size of each reduction has to come from the system.

A computed example from an assumed $1,800 monthly lesser allowance, not an ERSRI figure: the Option 1 nominee would receive that same lesser allowance, a computed $1,800 a month, and the Option 2 nominee would receive one-half of it, 1,800 divided by 2, a computed $900 a month. The $1,800 is an invented input; the statute gives no way to derive it, because the actuarial factors are not in it. For the general trade between single-life and survivor pensions, see single-life versus joint-and-survivor pension and survivor benefit with a government pension.

Who can be the nominee, and splitting the benefit

The nominee is a named person, not an automatic one. The statute describes the person as “such person, having an insurable interest in the beneficiary’s life”, and says the retiree “shall nominate by written designation duly acknowledged and filed with the retirement board at the time of the beneficiary’s retirement”. The designation is therefore part of the retirement paperwork rather than something added later.

A member can name more than one person. The statute allows that the member “may designate more than one person to receive benefits after the member’s death, provided that the designation shall specify the portion of the actuarial equivalent of the member’s retirement allowance to be paid to each person”. There is a ceiling: “the aggregate actuarial value of the portions shall not exceed the actuarial equivalent of the member’s retirement benefit”. There is also a limit on who may be named when there are several: the member “may only select beneficiaries from among his or her children, adopted children, step-children, and/or spouse or domestic partner”. The sections read do not say whether the same family limit applies to a single nominee.

What is fixed after you elect, and what the pages read do not say

Section 36-10-19, the section that follows the options, answers whether the election can be changed after retirement: “The election shall be based upon the amount of retirement allowances that may accrue at the date of death of the member and may be revoked or modified by the member at any time after retirement on a form prescribed by the retirement board, provided that, during this time, the named beneficiary has not been divorced from the member.” It also says where it applies: “The optional provisions of § 36-10-18 shall be applicable only to a member applying for a service retirement allowance, an accidental disability retirement allowance, and an ordinary disability retirement allowance or any inactive member applying for retirement under vested rights.” And it carves out one case: “This section shall not apply to any one who elects the social security supplemental option as provided by § 36-10-10.3.” What the statute does show is that one past change was handled through a dated window: members who had elected an optional form of benefit before July 1, 2012 were given until June 30, 2013 to switch back, and the statute’s wording was that “the member may elect to change his or her form of benefit to a life annuity”, “provided that the member’s beneficiary is still alive at the time the election is filed”. That window has closed, so it is a history point and not a current option.

The election itself is made at retirement: “The election under option 1 or 2 of § 36-10-18(a) shall be made at the time of retirement of the member as part of his or her application for a retirement allowance.” It can be revoked or modified afterwards on the board’s form, but not once the named beneficiary has been divorced from the member, so a member should still choose with care and ask the system for its form and any timing rule before electing.

Refund of contributions versus leaving them in the system

A member who leaves before retiring has a cash choice. The statute covers “A member who withdraws from service or ceases to be a member for any reason other than death or retirement”, and says that such a member “shall be paid on demand a refund consisting of the accumulated contributions standing to his or her credit in his or her individual account, without interest”. The words without interest matter: the refund is the member’s own contributions only, with no interest credited on them in this section.

The price of a refund is stated bluntly. “Any member receiving a refund shall thereby forfeit and relinquish all accrued rights as a member of the system together with credits for total service previously granted to the member”. A refund therefore ends the pension rights the contributions were building. Leaving the contributions in is the other choice, and section 36-10-11 makes it a real one. The right to a service allowance vests in a member who withdraws from service before the minimum retirement age and has not received a refund, “provided the member shall have completed at least ten (10) years of contributory service on or before June 30, 2012, for members terminating service or retiring on or before June 30, 2012, or at least five (5) years of contributory service for members terminating service or retiring on or after July 1, 2012.” Then: “The member shall become entitled to a service retirement allowance upon his or her attainment of the age established in § 36-10-9 or at his or her option at any date subsequent thereto.” A member with long service who is weighing a refund needs a benefit estimate from the system first, because the amount of the deferred allowance is not stated here. The general trade is laid out in pension refund versus leaving it.

Coming back: repaying a refund and getting the service credit back

The statute does let a refund be undone, at a cost. If a member who took a refund returns to covered work and rejoins, the statute says: “he or she shall have the privilege of restoring all money previously received or disbursed to his or her credit as a refund of contributions, plus regular interest for the period from the date of refund to the date of the restoration”. The interest is described only as regular interest, and the sections read do not state the rate.

The repayment brings the service back: “the member shall again receive credit for the amount of total service which he or she had previously forfeited by the acceptance of the refund”. There is a waiting condition: “The restoration of that credit shall be permitted only after the member shall have rendered at least one year of continuous service following his or her latest reentry into service for which he or she shall have made contributions to this system”. In practice that means a member cannot repay on the day of reentry. The one year of continuous contributing service comes first. Anyone who might return to covered employment should weigh the future repayment cost, since the interest runs from the date of the refund to the date of the restoration. For a calculator that prices buying back service, see the pension buyback calculator, and confirm any figure with the system.

The cost-of-living adjustment: the formula, the base and the funding test

Section 36-10-35 is long and layered, with older rules for retirees from earlier decades and temporary rules for 2012 to 2015. The formula that applies to adjustments from January 2016 onward is in subsection (h). The statute states that it applies to “all present and former employees, active and retired members, and beneficiaries receiving any retirement, disability or death allowance or benefit of any kind”. It builds the percentage from two parts, “the sum of fifty percent (50%) of (i) plus fifty percent (50%) of (ii)”.

The first part is a return-based percentage: the five-year average investment return of the system, less 5.5% (the statute calls it the subtrahend and adds: “In the event the retirement board adjusts the actuarially assumed rate of return for the system, either upward or downward, the subtrahend shall be adjusted either upward or downward in the same amount.”), with the result kept within a range, “said percentage not to exceed four percent (4%) and not to be less than zero percent (0%)”. The second part is tied to inflation: “the lesser of three percent (3%) or the percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)”. The two are then combined and bounded: “In no event shall the sum of (i) plus (ii) exceed three and one-half percent (3.5%) or be less than zero percent (0%).”

The percentage applies to only part of the allowance. The statute applies it to “the lesser of either the member’s retirement allowance or the first twenty-five thousand eight hundred and fifty-five dollars ($25,855) of retirement allowance”, and says of it: “such amount to be indexed annually in the same percentage as determined under subsection (h)(1)(B)(I) above.” The indexing percentage is therefore the same adjustment percentage the formula produces. For one group, the statute replaces that figure: it “shall be replaced with thirty-one thousand and twenty-six dollars ($31,026)”, for the group the statute words as members and/or beneficiaries of members “who retired after June 30, 2012, or on or before June 30, 2015”, joined by or rather than and, until the funded ratio test is met; ask the system which retirees the $31,026 reaches.

When the COLA starts, and what happens if the system is underfunded

A retiree does not receive the adjustment right away. The statute says “the benefit adjustments shall commence upon the third anniversary of the date of retirement or the date on which the retiree reaches their Social Security retirement age, whichever is later”, and that this timing governs retirees who were not already entitled to an adjustment as of June 30, 2012.

The adjustment depends on the system’s funding. For members other than those who retired on or before June 30, 2012, the statute says the adjustment “shall be reduced to twenty-five percent (25%) of the benefit adjustment unless the funded ratio of the employees’ retirement system of Rhode Island, the judicial retirement benefits trust, and the state police retirement benefits trust, calculated by the system’s actuary on an aggregate basis, exceeds eighty percent (80%)”. It then adds that effective July 1, 2024 the line is lowered: the 80% test “shall be replaced with seventy-five percent (75%)”. In other words, a member in the affected group gets the full formula amount only when the test is met and one quarter of it otherwise.

A computed example from assumed inputs, not an ERSRI figure: take an assumed five-year average investment return of 7.5% and assumed CPI-U growth of 2.5% in the prior September. The investment part is 7.5% less 5.5%, a computed 2.00% within its limits. The inflation part is the lesser of 3% and 2.5%, which is 2.5%. Half of each is 50% of 2.00% plus 50% of 2.5%, a computed 2.25%, which sits under the 3.5% ceiling. On an assumed yearly allowance of $20,000, which is below the $25,855 base so the whole allowance is used, and assuming the funded ratio test is met, that percentage gives an annual adjustment of 20,000 times the computed 2.25%, a computed $450. The $20,000, the 7.5% and the 2.5% are invented inputs. Real figures for any year come from the system, and the base is indexed annually, so the statute’s $25,855 is a starting point and not a current limit.

Older COLA rules in the same section

Subsection (c) holds an earlier rule that the statute words this way: “the cost of living adjustment shall be computed and paid at the rate of three percent (3%) of the original retirement allowance or the retirement allowance as computed in accordance with § 36-10-35.1, compounded annually from the year for which the cost of living adjustment was determined to be payable by the retirement board pursuant to the provisions of subsection (a) or (b) of this section.” The statute limits who gets it: “Such cost of living adjustments are available to members who retire before October 1, 2009, or are eligible to retire as of September 30, 2009.” The same subsection also covers state employees and beneficiaries “who have completed at least ten (10) years of contributory service on or before July 1, 2005”. Subsection (h)(1)(B) opens with this: “Notwithstanding the prior subsections of this section, for all present and former employees, active and retired members, and beneficiaries receiving any retirement, disability or death allowance or benefit of any kind, the annual benefit adjustment provided in any calendar year under this section for adjustments on and after January 1, 2016, and subject to subsection (h)(2) below, shall be equal to (I) multiplied by (II):” So for adjustments on and after January 1, 2016 the formula above governs, and the 3% compounded rate in subsection (c) is an earlier rule, not a second formula that a retiree can choose. Which earlier adjustments applied to a given retiree depends on retirement date and service on the stated dates; the system can say.

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of ERSRI’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The Rhode Island sections read describe a refund paid on demand but do not describe a rollover election, the tax notice or withholding, so the system’s refund forms are where those choices appear. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

What this page could not settle

• Whether the board’s form for revoking or modifying an Option 1 or Option 2 election after retirement carries deadlines or other conditions: section 36-10-19 names the divorce condition quoted above.
• The pages read do not state the size of the reduction for Option 1 or Option 2; the statute says only that the lesser allowance is set by actuarial calculation.
• What a deferred pension would be worth for a member who leaves: section 36-10-11 sets the vesting service quoted above, and the allowance rate is in section 36-10-10, which this page does not apply.
• The pages read do not state the rate of the regular interest charged on repaying a refund.
• The pages read do not state whether a spouse must consent to a refund or to an election without a survivor benefit.
• The pages read do not describe a lump sum retirement payment or a deferred retirement option program.
• The pages read do not state the benefit formula, retirement ages or service purchase rules beyond restoring a refund.
• The pages read are the state employee retirement sections of title 36 and do not say how they apply to teachers or to municipal employers that participate in the system.
• The pages read are statute text only: the system’s member handbook and forms were not read, and the statute shown reflects the version published when it was archived, which may have been amended since.
• The pages read do not state the actual current COLA percentage or indexed dollar base for any year.

Common mistakes

• Electing Option 2 and assuming the nominee keeps the full lesser allowance; the statute continues only one-half of it, while Option 1 continues the whole lesser allowance.
• Taking a refund without recognizing that the statute pays contributions without interest and forfeits accrued rights and service credits.
• Planning to repay a refund immediately after returning to work; the statute allows restoration only after at least one year of continuous contributing service following the latest reentry.
• Assuming the COLA is a flat percentage of the whole allowance; the formula applies to the lesser of the allowance or an indexed dollar base and depends on investment returns, inflation and a funded ratio test.
• Treating this page as the member handbook; it is built from the statute alone.

Related on this site: Rhode Island retirement taxes, does Rhode Island tax pensions, single-life versus joint-and-survivor pension, survivor benefit with a government pension, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• Rhode Island General Laws (ERSRI statutes), source 1: https://webserver.rilegislature.gov/Statutes/TITLE36/36-10/36-10-18.htm
• Rhode Island General Laws (ERSRI statutes), source 2: https://webserver.rilegislature.gov/Statutes/TITLE36/36-10/36-10-8.htm
• Rhode Island General Laws (ERSRI statutes), source 3: https://webserver.rilegislature.gov/Statutes/TITLE36/36-10/36-10-35.htm
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 2, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.