For the first time since 2009, many retirees and survivors will receive a cost-of-living adjustment to their annuities beginning in January. For those covered by the Civil Service Retirement System, the COLA will be 3.6 percent; for those covered by the Federal Employees Retirement System, 2.6 percent.
The Office of Personnel Management uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as published monthly by the Labor Department’s Bureau of Labor Statistics, to determine COLAs.
COLAs for both CSRS and FERS are based on the percentage increase in the CPI-W for the July-September quarter compared with the most recent quarter July-September on which an inflationary increase was based. When there isn’t any increase from the third quarter of one year to the third quarter of the following year, no COLA is payable. That’s what happened for two years running.
When COLAs are paid, CSRS retirees receive them regardless of the age at which they retire. Most FERS retirees only get them when they are age 62. However, there are exceptions. Survivors and disability retirees receive them regardless of their age, as do FERS retirees who were military reserve technicians who lost their military status due to medical reasons and were age 50 with at least 25 years of service, law enforcement officers, firefighters, air traffic controllers , and special CIA employees.
If the CPI-W increases by 3 percent or more in any year, FERS-covered retirees and survivors receive one percentage point less than that amount. If the CPI-W increases by 2 percent to less than 3 percent, CSRS retirees receive the full amount while FERS retirees receive 2 percent. If it increases by less than 2 percent, the adjustment equals the CPI-W for both CSRS and FERS.
Under both CSRS and FERS, when a COLA is payable, it’s applied to annuities that are effective Dec. 1, and the increase shows up in pension payments made on the first business day of January. If you retire any time during the year immediately preceding a COLA, your first COLA will be prorated. Because that has led to a lot of confusion about who is eligible for a COLA and how much it would be, here is the full picture.
If your monthly annuity began in December 2010, you will have been on the annuity rolls for 12 months when the 2012 COLAs take effect. Therefore you will receive the full COLA of 3.6 percent if you retired under CSRS or 2.6 percent if you retired under FERS.
Here is how COLAs are prorated for those who retired later:
• 3.3 percent under CSRS or 2.4 percent under FERS for January retirees.
• 3.0 percent under CSRS or 2.2 percent under FERS for February retirees.
• 2.7 percent under CSRS or 2.0 percent under FERS for March retirees.
• 2.4 percent under CSRS or 1.7 percent under FERS for April retirees.
• 2.1 percent under CSRS or 1.5 percent under FERS for May retirees.
• 1.8 percent under CSRS or 1.3 percent under FERS for June retirees.
• 1.5 percent under CSRS or 1.1 percent under FERS for July retirees.
• 1.2 percent under CSRS or 0.9 percent under FERS for August retirees.
• 0.9 percent under CSRS or 0.7 percent under FERS for September retirees.
• 0.6 percent under CSRS or 0.4 percent under FERS for October retirees.
• 0.3 percent under CSRS or 0.2 percent under FERS for November retirees.
Those who will retire in December are not eligible for COLAs in 2012.
Since the CPI-W is also used by the Social Security Administration to determine the amount of a Social Security cost-of-living adjustment, any of you who are eligible and have applied for a Social Security benefit can expect to receive a COLA pegged to the amount of time you’ve been entitled to that benefit. There’s no difference in the treatment of CSRS and FERS retirees and survivors. Those who have been on the Social Security benefit rolls since December 2010 will get the full 3.6 percent increase in January. Those who have entered the rolls since then will get proportionately less.