Last week I continued the tortured path that the payments of retiree COLAs took from their beginning in 1962 to 1984, when the Deficit Reduction Act specified that civilian and military COLAs would be effective in December and paid in checks issued in January. It’s what we’ve come to expect today. However, that legislative promise was soon broken.
Public Law 99-177 suspended COLAs for FY 1986 and all subsequent years in which specified deficit reduction targets of the year weren’t met. That directive only lasted for one year because the Omnibus Reconciliation Act of 1986 reinstated COLAs for FY 1987 through 1991. Then the following year, programs subject to suspension under P.L. 99-177 were permanently exempted from the earlier suspensions required by law.
In the midst of all this came a major change to the retirement system. On January 1, 1987, the Federal Employees Retirement System came on line. Where once there was only one retirement system – the Civil Service Retirement System – now there were two.
Not only were there new rules for when FERS employees could retire but the rules governing COLAs were also changed. While CSRS retirees continued to receive COLAs based on the CPI-W, FERS retirees were subject to a new and less generous formula. First, with few exceptions, COLAs were only added to their annuities when they reached age 62. Second, the formula for paying COLAs was less generous than the one for CSRS retirees.
While the payment schedule for COLAs settled down for the next few years, it was disrupted by the Omnibus Reconciliation Act of 1993, which postponed the effective date of COLAs from December to March for FY 1994 through 1996, with payments being made in April.
In 1997, the payment of COLAs was once again made effective in December and payable in January of the following year. Happily, that change has survived to the present day.
But as you’ve seen, where money and politics are involved anything that looks permanent can change with the stroke of a pen.
Cost-of-living-adjustments (COLAs) are effective on December 1 of each year and are applied to the annuity payments made the following month. COLAs for those retired less than one year are prorated according to the date on which they retired. If you retire in January, your first adjustment will be made in January of the following year and will be for 11/12ths of the COLA amount. If you retire in February it will be 10/12ths, and so forth. Future COLAs will be for the full amount.
COLA Based on Consumer Price Index
The COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI/W) average of the third calendar quarter of one year to the next. If the inflation count finishes negative, benefits are frozen but not reduced. Also, in that situation the starting point for the next COLA count remains the same.
Note: Social Security COLAs follow the same formula except that a full Social Security COLA is paid even to someone who has drawn benefits for less than a year.
Read more on COLAs under FERS and CSRS at ask.FEDweek.com
See also, Raise, COLA Don’t Affect Each Other