Federal Employees News Digest
Fight for adequate COLA for feds remains up the air, says leading advocacy group
- By Nathan Abse
- Dec 03, 2018
Over the years, federal employees under the Federal Employees Retirement System—FERS—sometimes have received cost-of-living increases lower than the inflation adjustments provided by Social Security and the old federal pension system, the Civil Service Retirement System—CSRS.
Social Security and CSRS use something called the “CPI-W”—a measurement of inflation issued by the Bureau of Labor and Statistics—to calculate their cost-of-living increases. In fact, FERS uses the same index—the CPI-W—to calculate its cost-of-living increases, but only tracks the calculation precisely when the CPI-W reports inflation of 2 percent or less. In those years in which the CPI-W calculation calls for an increase of more than 2 percent, the FERS formula reduces that raise significantly.
That’s why Rep. Gerry Connolly (D-Va.) has introduced and is co-sponsoring the “Equal COLA Act” bill. He and others see unfairness in curbing fed pay below true inflation. His proposal would give feds who retire under FERS the exact same cost-of-living calculations used by Social Security and CSRS—the increase would be keyed directly to the increase in consumer prices. In other words, if the CPI-W went up, say, 3 percent, the federal COLA would go up 3 percent too.
Why is the push for parity on this year? Because, for the first time in many years, the CPI-W happened has risen to over 2 percent—up to 2.8 percent, to be precise—and feds and their allies are not happy about being lowballed in their COLAs.
“Nearly 800,000 FERS retirees are wondering why they are only receiving a 2 percent COLA when consumer prices increased by 2.8 percent,” Ken Thomas, NARFE’s president, said in a statement in November. “The unsatisfying answer dates back to when FERS was created in the 1980s and a bargain was struck in Congress that limited the FERS COLA to 2 percent when consumer prices increase between 2 and 3 percent. That was the wrong policy then, as it is now, because it prevents FERS annuities from keeping up with inflation, which is the whole point of a COLA.”
In addition to the controversy over the COLA for retired feds, current federal employees face their own cliffhanger: whether they will get a reasonable bump in pay. Since October, current feds have been looking forward to a 1.9 percent pay raise for 2019, since congressional leaders then announced their intention to approve this modest boost in fed salary. Yet, in recent weeks, the White House has signaled it might scuttle the plan—with the president again saying his top priority is building a multi-billion-dollar wall on the southern border. If Congress doesn’t cooperate, the president has threatened to block funding, leading to a possible partial government shutdown beginning at midnight on Dec. 7.
This week, Nathan Abse discusses the proposed Equal COLA Act—and the prospects for a federal pay raise—with Jessica Klement and John Hatton, two federal compensation experts and leaders with the National Active and Retired Federal Employees Association. Klement is the Legislative Director and Hatton is Deputy Legislative Director for the organization.
Q&A with NARFE’s Jessica Klement and John Hatton
Can you tell our readers why NARFE is backing the Equal COLA Act?
NARFE: First of all, the COLA calculation for fed retirees hasn’t been an issue, really, since 2012. In fact, in many ways, it’s something many people had forgotten about. But the current law on COLAs, which was passed back in the 1980s, says that if the COLA—the CPI-W, used for CSRS and Social Security—is calculated at between 2 and 3 percent, then FERS retirees will get only a 2 percent, flat, COLA. You can see that this difference can come to just a small amount or almost a full percentage point less than the calculation would otherwise be. If the COLA is calculated to be more than 3 percent, then FERS retirees get that COLA minus 1 percent. In that situation, FERS recipients get an entire percentage point less. For example, if the Social Security COLA were calculated to be, say, 3.8 percent in a given year, then FERS retirees get that amount minus one percent—so they’d receive a 2.8 percent COLA. If the COLA calculation comes to under 2 percent, the FERS recipients get the full COLA. Anyway, this year, FERS retirees would get a 2.8 percent COLA, but under this law that will be reduced to just 1.8 percent, and that needs to change.
Why did Congress create such a strange formula—isn’t that unfair, giving FERS participants less?
NARFE: The formula came about because when Congress created FERS, they wanted to change things up, as they were provided a new system for retirement. They felt that they had to take into account that under the new system, FERS, federal retirees would receive Social Security. And they were trying to save money. This is the compromise that the House and Senate came to at the time. There were many factors involved. Anyway, they decided to work off the number that came to be used for CSRS and Social Security recipients, but also to discount that number to some degree. As it works out, when the COLA calculation is under 2 percent, FERS recipients receive the full COLA. But when it is over 2 percent, FERS retirees do not receive the full COLA—that’s the easiest way to say it.
What about CSRS recipients—how are their COLAs calculated?
NARFE: They get the same COLA that Social Security uses in its COLA calculation, so it’s a non-issue to CSRS recipients.
Why did this law, and this COLA calculation, remain a non-issue to FERS recipients—until recently?
NARFE: The law was an issue in the past, sometimes. But in recent years—between 2013 and this year—the COLA calculation that is used [the CPI-W] was at either zero or it was barely 2 percent. So, there was no discrepancy between the COLA other retirees were seeing and the FERS COLA, so there was no controversy. It’s only an issue when the CPI-W COLA calculation is more than 2 percent, and there is this reduction in the FERS COLA. Just like many other issues, when people are thinking about it it’s an issue. When there are reasons why they aren’t, it isn’t.
Is there any hope that the Equal COLA Act—which would end the discrepancy—could pass before the end of this year?
NARFE: Well, it is late in the year, now. And there is a lot that Congress has to tackle by the end of 2018. We actually asked Rep. Connolly if he would be interested in introducing this legislation by the end of this year, and he was. So it has been introduced. We think just the introduction of legislation throws down a marker, right? It says, “This is unacceptable,” or “This needs to change.” We are going to continue to ask our NARFE members to ask their members of Congress to co-sponsor this legislation. And if it doesn’t see action this year, we are going to ask for re-introduction of this bill early next year.
You said there were many factors that went into this flawed formula—but can you summarize?
NARFE: The quickest explanation as to why was that Congress was trying to balance out the costs of FERS—to make its costs similar to the costs of CSRS. And that led to tweaks to the new system, here and there. There were different proposals at the time as to how to handle the COLA issue, but this is what Congress settled on. This is the bargain that they struck.
Can you describe this in a little more detail?
NARFE: Remember that prior to FERS, feds came under a different system. FERS was in reaction to that. They were now going to get Social Security, plus a 401(k) type of deal, plus their retirement benefit, but the COLA would be lower. This was a balancing act—the thinking was about what someone would get under CSRS versus FERS. And that came down to what someone put into their TSP in addition to the other components here. The thinking went, if a fed were paying in with a full contribution to their TSP, then later when they were retired the TSP plus their FERS annuity plus their Social Security benefit would give you something comparable to your CSRS benefit. It was along these lines. That is what they said they were aiming for. Anyway, how well it worked out came to depend on what people put into their TSP.
Switching gears, what are NARFE’s other top aims—like, ensuring the pay raise for current feds?
NARFE: The pay raise is the current big issue. We’re still working on the pay raise for next year. It is still in conference committee in Congress. As of this morning, this is how things seem to be shaping up: We understand that, first, there will be an omnibus bill with several of the needed appropriations [for the agencies]. Next, it looks like there will be a CR—a continuing resolution—covering DHS, specifically, to get past the controversy over the border wall, the border issues. If Congress does go with an omnibus, well, we are just working very hard to get that pay raise in there. We want to get that 1.9 percent in there. The 1.9 is an average, by the way—it comes from an across-the-board raise of 1.5 percent combined with an average locality pay raise. This adds up to a 1.9 percent raise.
Are you worried about a shutdown—one still looms over funding for border issues, right?
NARFE: I refuse to think about any shutdown possibility—until next week, at least. Yes—that’s the short answer. But, this week, we are still focusing mostly on the pay raise issue.