New year, same COLA


For employees, 2010 is a mixed year for benefits. For retirees, it’s pretty much a bust.

General Schedule employees received a 2 percent pay increase, with 1.5 percent going to all employees and the remainder being distributed through locality pay. If you want to compare how you made out against employees in other areas, go to the Salaries and Wages page on the Office of Personnel Management Web site.

The maximum taxable earnings for Social Security withholding stay at the 2009 level — $106,800. So, if you are a Federal Employees Retirement System or Civil Service Retirement System Offset employee, any amount you earn above that amount won’t be subject to the 6.2 percent Social Security deduction. However, the 1.45 percent of salary that goes to pay for your eventual coverage under Medicare Part A will continue to be deducted.

Of course, depending on which Federal Employees Health Benefits Program plan you are enrolled in, a substantial bite may have been taken out of your pay increase. The same is true if you are enrolled in the Federal Long Term Care Insurance Program, where premium increases triggered a loud and anguished cry from affected enrollees.

If you are a retiree, you have the same concerns about increases in health insurance and long-term care insurance premiums. But you also have a bigger problem. For the first time in decades, you won’t receive a cost-of-living adjustment in your annuity. If you receive a Social Security benefit, you won’t get an increase in that, either.

COLAs for retirees and Social Security beneficiaries are determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of one year to the third quarter of the following one. Not surprisingly, considering the tumble the economy took, the CPI-W dropped. The good news is that there’s a “hold harmless” provision in the law: It prevents benefit recipients from having their annuities and Social Security benefits reduced, and it means most Medicare beneficiaries who are enrolled in Part B won’t see an increase in their monthly premiums. In fact, the Centers for Medicare and Medicaid Services said 73 percent of beneficiaries will be protected.

However, about 27 percent of Medicare beneficiaries will see increases because they are new enrollees, are subject to the income-related additional premium or don’t have their Part B premiums withheld from Social Security benefit payments.

If you receive a Social Security benefit, the Social Security exempt amount — the amount you can earn from another job or self-employment without causing that benefit to be reduced — is the same as it was in 2009: $14,160 for an individual or $37,680 for a couple.

If you are under full retirement age, $1 in benefits will be deducted for every $2 you earn above the limit. In the year in which you reach full retirement age, benefits will be reduced by $1 for every $3 you earn above the limit. There isn’t any limit beginning with the month in which you reach full retirement age.

While there’s been talk in Congress about giving all Social Security recipients a $250 payment to compensate for their loss of a COLA in 2010, and there have been finger-pointing hearings about the increases in premiums for health benefits and long-term care insurance, I wouldn’t hold my breath waiting for something positive to happen.

While things look bleak for retirees in 2010, they won’t be any better next year. According to those who crank out the numbers at the Social Security Administration, there won’t be any COLA increase for 2011 either. Sad to say, it’s just the way the numbers crunch in a downturn that hasn’t yet turned up.


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Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to

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