In October 2010, the Social Security Administration (SSA) announced that Social Security beneficiaries would not receive a cost-of-living adjustment (COLA) in 2011. Similarly, beneficiaries did not receive a COLA in 2010. Social Security COLAs are based on a measure of inflation reported by the Bureau of Labor Statistics (the Consumer Price Index) and a formula specified in the Social Security Act. Consumer prices reached a peak in the third quarter of 2008 but fell in subsequent months. Because the CPI-W did not regain its 2008 peak over subsequent measurement periods used to determine the COLA for 2010 and 2011, there has been no inflation adjustment to benefits for two consecutive years. Beneficiaries of other programs are also affected by the absence of a Social Security COLA. For example, the Social Security COLA triggers an increase in Supplemental Security Income, veterans' pensions administered by the Department of Veterans Affairs and railroad retirement benefits. Both the Congressional Budget Office (CBO) and the Social Security Board of Trustees project that a COLA will be payable in January 2012. In response to the absence of a COLA for the second consecutive year, some Members of Congress and the President are again calling for a one-time payment of $250 in lieu of a COLA for Social Security beneficiaries, veterans, and others. Democratic congressional leaders have stated their intent to bring such legislation to the floor before the close of the 111 th Congress. The proposed one-time payment is viewed by supporters as a way to assist economically vulnerable individuals and as a means to stimulate the economy. During the 111 th Congress, in response to the absence of a Social Security COLA in 2010 and 2011, a number of bills that would take different approaches have been introduced. Some measures would provide a one-time payment in lieu of a COLA (the amount of the payment would vary depending on the proposal), whereas others would provide an ad hoc COLA of a specified percentage or require the use of a different measure of inflation to compute the COLA. This report explains how the Social Security COLA is computed under current law and discusses some of the concerns that have been raised about the Consumer Price Index, the measure on which the COLA is based, as a true measure of the cost of living, especially for the elderly. It then provides a brief summary of legislation introduced in the 111 th Congress related to the Social Security COLA issue. The report presents policy considerations regarding a one-time payment in lieu of a COLA, including the economic status of older Americans, their reliance on Social Security benefits, and the effectiveness of this type of government spending as an economic stimulus. Drawing from recent experience with the $250 economic recovery payments to Social Security and other beneficiaries provided under the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), the report offers points to consider with respect to the design of a one-time payment proposal, such as the scope of the eligible beneficiary population; administrative issues, including those related to improper payments; and the budget impact of such payments. The Social Security COLA is an annual inflation-adjustment to benefits to help them maintain their purchasing power over time. Before 1972, Congress periodically increased benefits on an ad hoc basis. In 1972, Congress enacted legislation providing for automatic COLAs beginning in 1975. Since 1975, a COLA has been paid each year except 2010 and 2011. The Social Security COLA is based on the rate of inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is published monthly by the Bureau of Labor Statistics (BLS). Specifically, the COLA is based on the percentage increase in the average monthly CPI-W from the third quarter of the base year (the base year is the last year for which a COLA was applied) to the third quarter of the current year. The COLA is applied (or becomes effective ) in December of the current year and is payable in January of the following year. For example, the payment that a beneficiary receives in January 2011 reflects the benefit for December 2010. Social Security beneficiaries did not receive a COLA in January 2010 because the average monthly CPI-W fell by 2.1% from the third quarter of 2008 to the third quarter of 2009 (making 2008 the base year for computing the next COLA). Similarly, beneficiaries will not receive a COLA in January 2011 because the average monthly CPI-W fell by 0.6% from the third quarter of 2008 to the third quarter of 2010 (2008 remains the base year for computing the next COLA). The next COLA will be payable when the average monthly CPI-W for the third quarter of the current year exceeds the average monthly CPI-W for the third quarter of 2008. In August 2010, CBO and the Social Security Board of Trustees projected that the next COLA will be payable in January 2012. If there is a decrease in the CPI-W over the measurement period (if there is a decline in prices), Social Security benefits are not reduced. Stated another way, if the change in the CPI-W over the measurement period does not result in a COLA, benefits remain flat (before deductions for Medicare Part B and Part D premiums). Figure 1 illustrates how Social Security recipients benefit in 2010 and 2011 from the current-law provision that precludes a negative COLA. In the figure, the monthly benefit amount received by the average retired worker in 2004 ($1,073 ) is increased based on the CPI-W and the current-law Social Security COLA during the period from 2005 to 2011. The impact of the provision preventing a negative COLA is shown by the top line, which remains constant from 2009 to 2011. Without the provision prohibiting a negative COLA, benefit amounts would have followed the lower dashed line (indexed to the CPI-W) in 2010 and 2011. In the absence of a Social Security COLA, most Social Security beneficiaries will be held harmless for an increase in the Medicare Part B premium, therefore their net Social Security benefit amount will not decrease. For about a quarter of beneficiaries, however, an increase in Medicare Part B premiums may result in a net reduction to Social Security benefits. Regardless of whether a COLA is paid in a given year, beneficiaries could experience a net reduction in Social Security benefits as a result of increases in the Medicare Part D premium. The absence of a Social Security COLA also affects other provisions of the Social Security program. By law, if there is no COLA, there can be no change in the amount of covered wages subject to the Social Security payroll tax (i.e., the taxable wage base, which is $106,800 in 2010). In addition, there can be no change in the exempt amounts under the Social Security Retirement Earnings Test (RET). Similarly, there can be no change in the Substantial Gainful Activity (SGA) amount for blind individuals who receive Social Security disability benefits. These program elements are adjusted annually based on the increase in the national average wage index only if there is a COLA. As a result, these program elements remain at their 2009 levels in 2010 and 2011. Beneficiaries of other programs are also affected by the absence of a Social Security COLA, including low-income elderly and disabled persons, veterans, and federal civil service annuitants. Theses beneficiaries are affected because the Social Security COLA triggers an increase in another program's benefits, or the program uses the same measurement period and formula for computing the COLA as the Social Security program, or legislation is enacted each year providing a COLA for benefits paid under the program equal to the Social Security COLA. As a result, beneficiaries of the programs listed below will not receive a COLA in January 2011. The Social Security COLA triggers an increase in benefits paid under the following programs. Supplemental Security Income (SSI) . SSI is a means-tested program that provides monthly cash benefits to aged (65 or older), blind, or disabled persons with limited income and assets. SSI benefits are increased by the same percentage as the Social Security COLA. Veterans' Pension Benefit Programs . The Department of Veterans Affairs (VA) administers two means-tested pension benefit programs for veterans and their families: the Improved Disability Pension for certain low-income veterans and the Improved Death Pension for certain low-income surviving spouses and dependent children of veterans. VA pension benefits are increased by the same percentage as the Social Security COLA. Railroad Retirement Board (RRB) Programs . The RRB administers retirement and disability benefits for railroad workers and their families. Tier I benefits (which are equivalent to a Social Security benefit) are increased by the same percentage as the Social Security COLA. Tier II benefits (which are equivalent to a private pension) are increased by 32.5% of the Social Security COLA. COLAs under the following programs are not triggered by the Social Security COLA; however, these programs use the same measurement period and formula for computing COLAs as the Social Security program. Civil Service Retirement System (CSRS) . CSRS provides retirement, survivor and disability benefits to civilian federal employees hired before 1984 and their families. Benefits for CSRS retirees and survivors are adjusted annually by a COLA. Military Retirement System . The military retirement system includes monthly compensation and benefits after an active or reserve military career, disability retirement for those physically unfit to continue to serve, and survivor benefits for the eligible survivors of deceased retirees. The monthly retirement annuity is adjusted annually by a COLA. Similarly, the following program uses the same measurement period for computing its COLA as the Social Security program, although a modified formula is used to limit the COLA. Federal Employees Retirement System (FERS) .