COLAs, Raises Set Separately

The developments on the raise and COLA seem to have reignited some of the traditional misunderstandings regarding the two types of adjustments, including the common perception that they are linked in some way. The two are determined separately and one has no effect on the other. COLAs are for retirees and are set automatically according to an inflation index in which the average of one third quarter of a calendar year is compared to that of the next. Thus, the 2009 COLA will be announced in October when the September inflation number is released. Active employees get a pay raise—although many of them call it a COLA—that is set in the annual appropriations process, where numerous political and budgetary factors are involved. The starting point for raise deliberations typically is the employment cost index, which is a measure of wage growth, not inflation, for the 12 months ending in the third calendar quarter of the year preceding the one in which the raise deliberations are made. Therefore, the two types of adjustments don’t track each other and one sometimes is significantly larger than the other.