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Cost-of-Living Adjustments (COLAs)

General Rules and Procedures

The annual adjustment to annuities to reflect changes in the cost of living represents 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 eligible retirees and survivor annuitants 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. 

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 General Schedule 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.

The initial cost-of-living adjustment for newly retired CSRS employees is prorated depending on the month in which their retirement begins. 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. 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.

Note: CSRS employees who retire on the first, second, or third day of a month will have their annuities for that month reduced by 1/30th for each day they are not on the annuity roll.

To get the full January 2021 COLA, a CSRS retiree must have been retired no later than December 3, 2019. 

An annuity to a survivor begins on the day after the retiree dies. If the retiree already was receiving a COLA, the survivor annuity isn’t subject to proration. If the retiree hadn’t yet received one, the survivor’s COLA is prorated based on the commencing date of the deceased retiree’s annuity. The same proration applies to the COLA benefits of survivors of employees who die in service.

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 CSRS COLA rate by 12, multiply the result by the number of months on the annuity roll, then round to the nearest 1/10th percent.

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 change 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. 

Unlike CSRS employees who may retire up to the third day of a month and be on the annuity roll in that month, FERS retirees always are on the annuity roll in the month following the month in which they retire. For example, a FERS employee who retires on any date in June would be on the annuity roll in July.

To get the full January 2021 COLA, a FERS retiree must have retired no later than November 30, 2019; see above for policies regarding survivor annuities. 

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 FERS COLA rate by 12, multiply the result by the number of months on the annuity roll, then round to the nearest 1/10th percent.

With certain exceptions, FERS retirees don’t receive a cost-of-living adjustment to their annuities until age 62. Not subject to this limitation are: 

• retirement benefits payable to law enforcement officers, firefighters, air traffic controllers, special CIA employees, 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;

• survivor benefits; and

• disability retirement benefits. 

For FERS retirees with a mixed CSRS/FERS annuity, the COLA on the CSRS portion is governed by CSRS policies and the COLA on the FERS portion is governed by FERS policies.

Note: The special retirement supplement, which approximates the amount of Social Security benefit earned while a FERS employee, is never increased by cost-of-living adjustments. See Special Retirement Supplement in Chapter 3, Section 4. 

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