Step increases can help thaw wage freeze


Whether you are an employee or a retiree, this year is a real bust when it comes to benefits.

Employee pay scales are frozen at 2010 levels for two years under a presidential proposal that was approved by Congress. Frozen are cost-of-living adjustments to the General Schedule, Senior Executive Service, wage grade and other pay scales in the executive branch for 2011 and 2012.

On the bright side, employees eligible for step increases will still receive them in those years. About 1.1 million GS employees — three-quarters of the GS population — will receive $2.5 billion in raises through step increases over the next two years, according to a Federal Times analysis. Others will also be eligible for promotions and bonuses.

Also on the bright side, the maximum taxable earnings amount for Social Security purposes will stay at the 2009 level — $106,800 — just as it did in 2010. That’s because there won’t be any increase in Social Security benefits in 2011. Therefore, if you are under the Federal Employees Retirement System or Civil Service Retirement System Offset, any amount you earn over $106,800 won’t be subject to the 6.2 percent Social Security deduction.

As a retiree, for the second year in a row, you won’t receive a cost-of-living adjustment in your annuity; and, if you are receiving 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 next. The CPI-W dropped between 2009 and 2010, as it did between 2008 and 2009 — negating a COLA increase in 2011, as it did in 2010.

Among the good news: There’s a “hold harmless” provision in the law, which does two things to make not getting a COLA increase more palatable: First, it prevents benefit recipients from having their annuities and Social Security benefits reduced. Second, it protects nearly three-quarters of Medicare Part B enrollees from having their monthly premiums increased.

On the other hand, more than one-quarter of Medicare Part B enrollees will see an increase. You will be among those if you are a new enrollee in Medicare Part B, are subject to the income-related additional premium amount or don’t have your Part B premiums withheld from your 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 and 2010: $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, $1 in benefits will be deducted for every $3 you earn above the limit. There is no limit beginning with the month in which you reach full retirement age.

While there was talk all last year about giving Social Security recipients a $250 payment to compensate for their loss of a COLA in 2010, nothing happened. And, barring a legislative miracle, nothing is likely to happen in 2011.

Although many benefits for employees and retirees will not increase in 2011, some expenses will increase. Depending on which Federal Employees Health Benefits Program plan you are enrolled in, a substantial bite for premiums might be taken out of your income. The same is true if you are enrolled in the Federal Long Term Care Insurance Program. There are no “hold harmless” provisions that can keep these premiums in check.


About Author

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

Leave A Reply