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Chapter 4, Section 3: Cost-of-Living Adjustments (COLAs)

The annual adjustments to annuities to reflect changes in the cost of living represent one of the most important provisions in federal retirement programs.

General Rules and Procedures

The annual adjustments to annuities to reflect changes in the cost of living represent one of the most important provisions in federal retirement programs. The Civil Service Retirement System (CSRS) and Social Security keep annuities at their full value each year (unless specifically modified by changes in law), and the Federal Employees Retirement System (FERS) provides almost full inflation protection.

The cost-of-living increases for retirees and survivor annuitants normally are effective each December, payable in January annuity payments.

Note: If the COLA count for a measuring period (see below) is negative, benefits are frozen but not reduced.

Under FERS and CSRS, initial cost-of-living adjustments for newly retired employees are prorated depending on the month in which their annuity begins. For example, to get the full January 2012 COLA, a retiree annuity must have begun no later than November 30 (FERS) or December 3 (CSRS), 2010. A survivor annuity must have begun no later than December 31, 2010. To determine the amount of COLA for a retiree or survivor who has not been on the annuity roll for at least 12 months, divide the COLA rate by 12, multiply the result by the number of months on the annuity roll, then round to the nearest 1/10th of 1 percent.

A CSRS employee who retires within the first three days of a given month will be on the annuity roll for that month; otherwise, the employee would be on the roll for the following month. A FERS retiree is always on the annuity roll in the month following the month in which he or she retired. For example, a CSRS employee whose retirement date was June 1, 2, or 3 would be on the annuity roll in June; but if the retirement date was June 4 through 30, the employee would be on the annuity roll in July. A FERS employee who retired on any date in June would be on the annuity roll in July.

Note: A CSRS employee who retires on the first, second, or third day of the month will have his annuity for that month reduced by 1/30th for each day that he is not on the annuity roll.

Retiree COLAs of Recent Years
Federal Employees Retirement System
Year Rate   Year Rate   Year Rate
2012 2.6   2005 2.0   1998 2.0
2011 0.0**   2004 2.0   1997 2.0
2010 0.0**   2003 1.4   1996 2.0*
2009 4.8   2002 2.0   1995 2.0*
2008 2.0   2001 2.5   1994 2.0*
2007 2.3   2000 2.0   1993 2.0
2006 3.1   1999 1.3   1992 2.7
 
Civil Service Retirement System
Year Rate   Year Rate   Year Rate
2012 3.6   2005 2.7   1998 2.1
2011 0.0**   2004 2.1   1997 2.9
2010 0.0**   2003 1.4   1996 2.6*
2009 5.8   2002 2.6   1995 2.8*
2008 2.3   2001 3.5   1994 2.6*
2007 3.3   2000 2.4   1993 3.0
2006 4.1   1999 1.3   1992 3.7
* Delayed three months until April of each year, under P.L. 103-66.
** No COLA paid because inflation count was negative.

If the COLA will cause an annuity to exceed the pay rate for GS-15, step 10, at the highest locality pay rate, the adjustment will be capped at that figure. However, if an individual's final salary (or "high-3" average salary, if higher) increased by all cumulative average general schedule salary increases from the commencing date of his or her annuity to the COLA date is greater than the highest rate for GS-15, step 10, this latter amount will be the annuity cap. Cumulative GS increases are used in all cases, even though the individual may have been employed under a different pay system. Although this cap applies to any increases added to an existing annuity, an annuity that currently exceeds the cap will not be reduced.

The COLA on Social Security benefits is paid at the same rate as that of CSRS benefits. A full Social Security COLA is paid even if the retiree has been receiving benefits for less than a year.

CSRS COLAs

The percentage increases of CSRS COLAs are determined by the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of each year over the third-quarter average CPI-W index of the previous year. COLAs are paid to all CSRS retirees, regardless of the age at which they retire, and to their survivors.

FERS COLAs

The percentage increases of FERS COLAs begin with the same calculation used for CSRS COLAs. If the increase is 3 percent or more, benefits eligible for COLAs are increased by the CPI-W minus one percentage point. If the CPI-W increases by 2 percent to 3 percent, the adjustment will be 2 percent. If the CPI-W increase is 2 percent or less, the adjustment will equal the CPI-W increase.

The following FERS benefits are increased by cost-of-living adjustments:

  • retirement benefits payable to retirees age 62 and older;
  • retirement benefits payable to law enforcement officers, firefighters, air traffic controllers, or military reserve technicians who lost their military status due to medical reasons and who were age 50 with at least 25 years of service, and special CIA employees;
  • survivor benefits; and
  • disability retirement benefits.

For FERS retirees with a mixed CSRS/FERS annuity, the COLA on the CSRS portion is paid at the CSRS rate and the COLA on the FERS portion is set at the FERS rate.

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