A number of federal retirees have been asking about how the federal pay raise will affect them, again illustrating a long-running misunderstanding regarding the differences between raises and COLAs.
Only active employees will receive the raise, which is expected to show up in pay distributions soon—possibly with the next one—and back pay retroactive to January 6 (the start of the first full pay period of the year, the traditional effective date for raises) is to be paid, as well.
Although many employees refer to raises as COLAs—cost of living adjustments—raises are not linked to living costs. Instead, they are negotiated in the annual budget process involving the White House and Congress—which can be lengthy and contentious, as underscored by the latest cycle, which at first resulted in no raise being paid in January only to be overridden later by enactment of a 1.9 percent average raise retroactive. Part of the total raise figure varies by locality based on comparisons of federal vs. non-federal salaries conducted by the Labor Department, resulting in a range from 1.66 to 2.27 percent.
In contrast, federal retiree COLAs are paid each January based on an inflation index comparing the average of the third calendar quarter of a year to the previous year’s third quarter, an announcement made in late October for the upcoming year. The same figure is used to increase benefits under some other retirement programs including Social Security and military retirement.
Payment of a COLA is automatic unless Congress and the White House agree to block it; however, there have been several recent years in which the count finished in negative territory, resulting in no COLA being paid.
While COLAs do not vary by locality, they do vary between the two main federal retirement systems. While CSRS retirees get the full adjustment, FERS annuities are not increased for those under age 62 except for disability retirees, survivor beneficiaries and those who retired from occupations requiring earlier mandatory retirement.
More on Cost of Living Adjustments for Federal Retirees at ask.FEDweek.com
Further, if the inflation number is between 2 and 3 percent, the COLA for FERS retirees eligible to receive one is 2 percent; and if 3.1 percent or more, it is 1 percentage point less (the full adjustment is paid under both systems if it is 2 percent or less). That rule applied when the retiree COLAS were paid in January, when benefits increased by 2.8 percent for CSRS retirees and by 2 percent for FERS retirees who were eligible for the COLA.
In addition, COLAs are prorated for retirees who have been on the annuity rolls for less than 12 months.
The count toward the January 2020 COLA will reach its halfway mark soon with the announcement of inflation figures through March. The annual negotiation on Capitol Hill over a raise for active employees meanwhile has just started, with President Trump once again recommending no raise but some Democrats pushing for 3.6 percent.