Previous articles have looked at the trials and tribulations surrounding the creation of annual retiree cost-of living adjustments, or COLAs.
A fitting end to this series of COLA articles is a quotation from a Congressional Research Service Report for Congress, entitled Cost-of Living Adjustments for Federal Civil Service Annuities:
“Cost-of-living adjustments (COLAs) for the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS) are based on the rate of inflation measured by the Consumer Price index for Urban Wage Earners and Clerical Workers (CPI-W). COLAs for both CSRS and FERS are determined by the average monthly CPI-W during the third quarter (July to September) of the current calendar year and the third quarter of the previous year. The “effective date” of COLAs is December, but they first appear in the benefit checks issued during the following January.
“All CSRS retirees and survivors receive COLAs. Under FERS, however, non-disabled retirees under age 62 do not receive COLAs. Survivors and disabled retirees are eligible for COLAs under FERS regardless of age. CSRS pays a COLA that is equal to the percentage change in the CPI-W during the measuring period, but COLAs under FERS are limited if the rate of inflation is greater than 2 %. If the rate of inflation during the measurement period is between 2% and 3%, the COLA under FERS is 2%. If the inflation rate is greater than 3.0%, then the COLA for FERS benefits is equal to the CPI-W minus one percentage point.
“Congress passed the first law requiring automatic COLAs for federal civil service retirement benefits in 1962, and it had adjusted either the formula by which they are calculated or the date on which they take effect more than a dozen times since then.”
In those nearly 40 years, COLA payouts have been all over the place, as the economy has soared and crashed. While retiree COLAs reached a high of 4.8 percent for FERS and 5.8 percent for CSRS in 2009, they hit zero in 2010, 2011 and 2016.
But at least now, the policy has stabilized. If you are retired, you can offer a prayer that the current stability continues and that future adjustments to retirement annuities continue uninterrupted.