2012 outlook eases slightly with COLA’s return


In my first column of the year, I used to confidently write that whether you were an em-ployee, retiree or survivor, there would be positive changes in your pay and benefits in January. That was before the freeze on employees’ pay raises and the zero adjustment to retirees’ cost-of-living adjustments. Here’s what’s ahead in 2012.

Although employee take-home pay can still be increased by within-grade increases and promotions, the freeze on annual pay increases continues through this year. Some in Congress would like to see the freeze continue past 2012. To see what you are making, go to the salary tables on the Office of Personnel Management’s website, www.opm.gov.

Although federal employees haven’t seen across-the-board increases, the Social Security maximum taxable wage has increased from $106,800, which it was for the past three years, to $110,100. Once you earn that much this calendar year, Social Security taxes won’t be deducted from your salary for the rest of the year. However, taxes for Medicare Part A will continue to be deducted, even if you earn more than that.

After two years of no increases, COLAs are back. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.6 percent. So, if you are a Civil Service Retirement System retiree who has been retired for at least one year as of Nov. 30, you’ll receive the full COLA in your January annuity payment.

If you were covered by the Federal Employees Retirement System, you’ll receive a 2.6 percent increase only if you meet one of the following three criteria: you are age 62; you retired under provisions for law enforcement officers, firefighters or air traffic controllers; or you are a survivor or disability annuitant.

If you’ve been retired for less than one year when you become eligible for a COLA, the amount you get will be proportional to the number of months you’ve been on the annuity roll. For example, if you were on the annuity roll in June, you’ll receive half of the 2012 COLA; if you were on the annuity roll in September, you’ll get one-third of the COLA.

If you are a FERS retiree with a CSRS component in your annuity, the CSRS component will be increased under CSRS rules. In other words, you’ll get the full 3.6 percent COLA on the CSRS portion of your annuity.

Like COLAs, Social Security benefits are increased by the annual change in the CPI/W. However, there is no reduction for FERS retirees. So, if you are eligible for a Social Security benefit, you’ll get the same 3.6 percent increase as any other eligible individual.

Eligibility for a Social Security benefit begins at age 62 but with a reduced benefit. The amount increases until you reach your full retirement age, between 65 and 67 depending on the year in which you were born. For example, if your full retirement age is 65 and you apply for a Social Security benefit at age 62, the benefit reduction will be about 20 percent. If your full retirement age is 67, the reduction will be about 30 percent.

The Social Security earnings limit for 2012 is $14,640, up from $14,160 in 2009, 2010 and 2011. If you are a retiree who is receiving a Social Security benefit and you haven’t reached full retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over the limit. In the year you reach full retirement age, the reduction is $1 for every $3 above a different limit — $38,880 in 2012. There is no reduction beginning with the month you reach full retirement age.

The earnings limit also is important if you receive the FERS special retirement supplement, which approximates the Social Security benefit you earned while employed under FERS. It continues until age 62, when you are eligible for a Social Security benefit. With two exceptions, if you are a FERS retiree who earns more than $14,640 in 2012, your SRS will be reduced by $1 for every $2 over the earnings limit. The exceptions apply if you retired before your minimum retirement age and were employed under the provisions for law enforcement officers, firefighters and air traffic controllers; or were a military reserve technician who was separated for loss of military membership. In either case, when you reach minimum retirement age, you’ll be subject to the earnings limit.


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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 fedexperts@federaltimes.com.

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