Reg Jones Expert's View

Did you know that cost-of-living adjustments to retiree annuities weren’t automatic until 1962? That’s right. Before then a specific act of Congress was required for annuities to be adjusted. Despite the fact that COLAs were now to be applied automatically based on the Consumer Price Index, they weren’t triggered until the change from the previous year was 3 percent or more. In 1965 that was modified to say that the increase would be triggered whenever the CPI for a month was at least 3 percent higher than it was in the month when the last adjustment was made, and remained at that level for three consecutive months.

The year 1969 set the first of two high-water marks for COLAs. That’s when the 1 percent "kicker" was introduced. Whenever a COLA was called for, an additional 1 percent was added to offset the erosion of benefits as a result of the time lag in the adjustment formula.

While that 1 percent add-on was repealed in 1976, its absence was made up for through the introduction of semi-annual adjustments. This was the second and last of the high-water marks.

What followed was a series of tinkerings, most of which were negative. In 1981, the semi-annual COLA was replaced with annual ones, which were payable in March of the following year. The following year, COLAs were set to be delayed by one month in fiscal years 1983,’84 and ’85. The month in which they were payable was also shifted forward, with the 1985 COLA scheduled for June. Further, the law required that non-disability annuitants under age 62 only be paid half of the projected adjustment. However, this provision was repealed in 1984. As a result, COLAs for retirees beginning with January 1985 forward would be for the full amount.

In 1984 the COLA scheduled for May was moved forward to December, payable in January. Further, the law provided that all future COLAs would be effective in December and payable in January. Thus, for the first time, retiree annuity COLAs were to be provided on the same schedule as those for Social Security recipients.

COLAs were once again offered as a sacrificial lamb when those for 1986 were suspended because specified deficit reduction targets for the year would otherwise not be met. The same was intended to happen in all subsequent years where targets weren’t met. Later Congressional action reinstated the COLAs for 1987 through 1991. It took another act of Congress to permanently exempt COLAs from such suspensions.

The most recent change occurred in 1993, when the effective date of COLAs was switched from December to March for FY 1994 through FY 1996. Since then, things have been stable. However, like dormant volcanoes, the potential for another eruption is always a possibility.