Reg Jones Expert's View

Reg Jones

Last week I introduced you to the early history of laws providing federal retirees with cost-of-living adjustments. It was a period of nine years in which experimentation led to changes in the timing and frequency of COLAs. That ended in 1981with a law giving federal retirees an annual COLA based on a December to December measurement and paid in March of the following year. That was close to what federal retirees enjoy today.

However, only one year later fiscal and political forces led to radical changes. The Omnibus Reconciliation Act of 1982 delayed the implementation of COLAs by one month in fiscal years 1983, 1984, and 1985. As a result. the date on which the 1983 COLA would be paid shifted from March 1 to April 1, with the 1984 adjustment to May 1, and the 1985 adjustment to June 1.

That same law limited COLAs in certain cases. It provided that a COLA could not be increased by an amount that exceeded the greater of 1) the maximum pay for a GS-15 or 2) the employee’s final pay (or high-3, if that was greater), increased by the average annual percentage change (compounded) in rates of pay of the General Schedule for the period beginning on the retiree’s annuity starting date and ending on the effective date of the adjustment.

Only a year later the law delaying COLAs was changed to move the COLA scheduled for May 1984 to December, payable in January 1985. Thereafter, all COLAs were to be effective in December and payable in January based on the average monthly CPI-W from the third-quarter of one year to the third-quarter of the following year. This brought federal retiree COLAs in line with those for Social Security recipients.

Only a few months after that another law was passed requiring that both civilian and military COLAs be issued on the first business day of the month following the month in which they are effective. In other words, COLAs that were effective in December would be paid in January. Sounds good, but – unfortunately – that wasn’t the end of it. I’ll pick that story up next week.

Cost-of-living-adjustments (COLAs) are effective on December 1 of each year and are applied to the annuity payments made the following month. COLAs for those retired less than one year are prorated according to the date on which they retired. If you retire in January, your first adjustment will be made in January of the following year and will be for 11/12ths of the COLA amount. If you retire in February it will be 10/12ths, and so forth. Future COLAs will be for the full amount.

COLA Based on Consumer Price Index
The COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI/W) average of the third calendar quarter of one year to the next. If the inflation count finishes negative, benefits are frozen but not reduced. Also, in that situation the starting point for the next COLA count remains the same.

Note: Social Security COLAs follow the same formula except that a full Social Security COLA is paid even to someone who has drawn benefits for less than a year.

Read more on COLAs under FERS and CSRS at ask.FEDweek.com

See also, Raise, COLA Don’t Affect Each Other