Reg Jones Expert's View

One of the best benefits provided to federal retirees and survivors is the cost-of living adjustment (COLA). With rare exception, it is used annually to increase your annuity. It differs from annual pay increases for active employees, which are always subject to jiggerypokery by the President and the Congress. Instead it is a subset of data collected by the Bureau of Labor Statistics (BLS), which is designed to more closely match the spending patterns of federal beneficiaries. It’s called the CPI-W.

To develop this number, BLS gathers detailed expenditure information provided by families and individuals about what they actually bought. It follows a multitude of consumption trends that are bundled into eight major groups: food and beverage; housing; apparel; transportation; medical care; recreation; education and communication; and other good and services. It also tracks government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls, plus sales and excise taxes. It doesn’t track income or Social Security taxes nor does include investment items, such as stocks, bonds, real estate, and life insurance.

COLAs are effective on December 1, with the increases showing up in January payments of those who are eligible to receive them.

The difference in COLAs between CSRS and FERS COLAs is a result of the law that created FERS. It provided that if the CPI/W increases by 3 percent of more in any year, FERS-covered retirees and survivors will get 1 percent less than that. If the CPI/W goes up by 2 to 3 percent, the adjustment will be 2 percent. That’s what’s happening with the January 2004 payment, which is 2.1 percent for CSRS and 2 percent for FERS.

If it increases by less than 2 percent, the adjustment will be the same as the CPI/W. That’s happened last year when the CPI/W measured 1.4 percent. CSRS and FERS employees alike received 1.4 percent.

The date on which you retire determines how much – if anything – you will receive. For example, if you retired in the month of December 2003, you would not be eligible to receive a COLA until January 2005. For each month that you retired earlier than December 2003, you would receive 1/12th of the COLA. So, for example, if you were a CSRS employee who retired in September, your COLA would be 3/12ths (or 1/4) of 2.1 percent. In other words, your COLA would be .525 percent. If you were a FERS employee, it would be .5 percent.