Expert's View

Reg Jones

There’s higher interest than usual these days about the 2022 federal retirement cost of living adjustment, largely because that COLA will be higher than usual.

Higher than since early in the Reagan administration, in fact: 5.9 percent for those retired under CSRS, 4.9 under FERS. Both are well above the expected raise for active employees in January, which likely will average 2.7 percent with some difference by locality.

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The result is I’m hearing a lot of buzz from retirement eligible employees whose idea, basically is “Why should I keep working and get a 2.7 percent raise when I can retire and get a raise of 5.9 (or 4.9) percent?”

While I hate to be the bearer of bad news so often regarding federal benefits, there’s some things they/you should know about how COLAs work.

Number one is, your annuity as a retiree will be smaller than your salary as an active employee (how much smaller depends on your creditable service as a federal employee). So, the dollar value of a COLA increase of a certain percentage is less than the dollar value of a raise to your salary of that same percentage.

Second, to receive a COLA as a retiree you need to be eligible in the first place. If you retire under CSRS, that’s not a concern: you are eligible at any age.

However, a FERS retiree generally isn’t eligible for a COLA until reaching age 62. The main exception is that there is no minimum age for special category employees, such as a law enforcement officer, firefighter or air traffic controller. There also is no age minimum for those retiring on disability or for survivor beneficiaries. (Note: For FERS employees who aren’t eligible for a COLA during their first year or more on the annuity roll, their first COLA after becoming eligible will be for the full amount, no matter in which month that eligibility occurs.)

Third, for those who have been on the annuity roll less than a full year when the COLA takes effect (which technically was December 1, although the payout is January 1) the COLA is prorated—11/12 for those on the roll 11 months, 10/12 for those on the roll 10 months, and so on. Which leads us to the question: when are you “on the annuity roll”?

FERS—FERS employees have to retire no later than the last day of a month if they want to be on the annuity roll in the following month. In other words, you would have had to retire no later than November 30 to be on the annuity roll on December 1. If you missed that target by a single day, you wouldn’t be on the annuity roll until the following month.

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CSRS—CSRS employees can retire up to the third day in any month and be on the annuity roll in that same month. Therefore, you could have retired through December 3 and still have been on the annuity roll in December. However, for every one of those days that you weren’t on the annuity roll, your first month’s annuity would be reduced by 1/30th.

So, unfortunately it’s already too late to retire and capture even part of that big 2022 COLA. However, whether you’re just about to retire or not, you should know those rules for the future. You also will want to consider some other factors in terms of timing your retirement.

If you retire (under either system) before the start of the new leave (not calendar) year—that is, before the start of the first full pay period of the year—you’ll get a lump-sum payment for all your unused annual leave, including any leave that exceeds the annual limit (typically 240 hours) that you could carry into the new leave year.

Those hours of annual leave will be projected forward as if you were still on the payroll, meaning that even though you are no longer working during that period, you would benefit from any pay raise that takes effect during that time. Pay raises typically take effect as of the first day of the new leave year.

The last day of the 2021 leave year is January 1, 2022. A list of starting and ending dates for leave year 2022 and beyond is at https://www.opm.gov/policy-data-oversight/pay-leave/leave-administration/fact-sheets/leave-year-beginning-and-ending-dates.

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One special consideration: Let’s say you’re a CSRS employee who will be retiring with less than the annual leave carryover maximum. Therefore, the requirement to retire before the end of the leave year so that your lump-sum payment would be for more than that amount is not an issue to you. You could retire as late as January 3 and still be on the annuity roll for that month for purposes of the 2023 COLA and earn some additional salary as well. However, because you haven’t completed a pay period, you won’t get any annual or sick leave credit for those extra days.

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