Cost-of-living adjustments are one of the best benefits provided to federal retirees, their survivors and Social Security beneficiaries. They are the gift that keeps on giving because they help you keep pace with inflation. And the gift for 2013 is 1.7 percent.
Who is eligible for a COLA and when? If you are a Civil Service Retirement System retiree, you will receive a COLA regardless of your age. With certain exceptions, if you are a Federal Employees Retirement System retiree, you won’t receive your first COLA until you reach age 62.
Here are some exceptions. If you are a FERS employee who retired under the special provisions for law enforcement officers, firefighters or air traffic controllers, you will begin receiving your COLA, regardless of your age, as will any spouses, former spouses and insurable-interest survivor annuitants. The exception also applies to military reserve technicians whose separation from technician service resulted from a loss of military membership or rank because of disability after reaching age 50 and completing 25 years of service.
When are COLAs effective? On Dec. 1 of the year in which a retiree, survivor or Social Security beneficiary becomes eligible. The increases are reflected in January payments following the effective date.
Those of you who have been retired for an entire year receive the full amount of the COLA. Those retired less than a year receive prorated COLAs. The proration is based on the number of months that have passed between the date your annuity began and the effective date of the first COLA after that date.
To avoid proration of the 2013 COLA, you’d have had to retire no later than Nov. 30, 2011, under FERS or Dec. 3, 2011, under CSRS. In those cases, you would have been on the annuity roll for a full 12 months when the increase was applied. If you retired after those dates, your COLA would be reduced by 1/12th for each month that you were still employed.
For example, if you were a CSRS employee on the annuity roll in June 2012, your 2013 COLA would be 6/12ths — or half — of 1.7 percent. In other words, your COLA would be 0.9 percent — 0.85 rounded up to the nearest tenth.
To find out what your prorated COLA will be, determine the number of months you were on the annuity roll at the time the COLA was effective. Divide the COLA rate by 12 and multiply the answer by the number of months you were on the rolls. Round the answer to the nearest tenth of 1 percent. The result is your prorated COLA.
Are COLA amounts different for CSRS and FERS retirees? While the 2013 COLA will be the same under CSRS and FERS, it isn’t always that way. That’s because the FERS law states that if the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increases by 3 percent or more in any year, FERS-covered retirees and survivors will receive 1 percentage point less than that number. If the CPI-W increases by 2 percent to 3 percent, the adjustment will be 2 percent. If it increases by less than 2 percent, the adjustment will equal the CPI/W. That’s what’s happening in 2013.
Note: The rules are different for Social Security beneficiaries. Each of them will receive the same COLA as all other Social Security beneficiaries. In 2013, that will be 1.7 percent.
The CPI-W is based on the spending patterns of households where more than half of the income comes from clerical or wage occupations and where at least one of the household’s earners has been employed for at least 37 weeks during the previous 12 months.
So there you have it. While a 1.7 percent increase for those of you who are getting it won’t underwrite a major purchase, it may at least help offset any increases in your 2013 Federal Employees Health Benefits program premiums.