Federal Employees News Digest

Understanding CSRS and FERS Cost-of-living Adjustments - Part I

While federal employees receive government-wide pay increases and locality pay adjustments in most years, federal annuitants receive cost-of-living adjustments or COLAs in most years. In the first of two columns explaining COLAs, this column explains COLAs for those annuitants covered by the Civil Service Retirement Systems, including CSRS Offset annuitants.

It is important to first present the definition of certain terms used in the computation of the CSRS COLA. These terms are:

· Base quarter. The calendar quarter ending September 30th of any year.

· Consumer price index (CPI). The index published monthly by the Department of Labor that reflects changes in consumer prices for urban wage earners and clerical workers.

· Base quarter price index. The arithmetical mean of the CPI for the three months comprising the base quarter.

· COLA. An increase in an annuity based on the increase in the CPI between two consecutive base quarters.

· Effective date. COLAs are effective on Dec. 1st of the year in which an annuitant becomes eligible.

· Annuity commencing date. The date an annuity first begins to accrue.

Computation of COLAs

The amount of a COLA is determined by the percent change in the base quarter price index from the previous year to the year in which the COLA is to become effective, adjusted to the nearest 1/10 of one percent.

COLA Increase

An individual’s new gross annuity reflecting the COLA increase is calculated by multiplying the old gross monthly annuity by the COLA factor (one plus the COLA rate). The following example illustrates:

 John, a CSRS annuitant, had a gross CSRS monthly annuity of $4,200 during 2017. Effective Dec. 1, 2018, John‘s monthly annuity will increase as follows:

$4,200 x (1 + .028) = $4,317

The gross monthly annuity is the annuity payable performed after reduction adjustments have been made when applicable for all of the following: (1) Survivor benefits (2) alternative annuity; (3) reduction for early retirement; (4) unpaid deposit service performed before Oct. 1, 1992; and (5) unpaid redeposit for service ended prior to March 1, 1991.

Note that the gross monthly annuities are always rounded to the next lowest dollar. However, after a COLA adjustment the gross monthly annuity must reflect an increase of at least $1.00. The COLA is applied before withholding for federal and state income taxes and for health and life insurance premiums.

Proration of First Year COLA

The amount of a CSRS annuitant’s first year COLA is prorated. The proration is based on the number of months from the annuity commencement date to the effective date of the first COLA after the commencement date, as explained:

1. Annuitants receive one-twelfth of the applicable COLA increase for each month, not to exceed 12 months, that they are in receipt of an annuity before December 1.

2. To receive the full December 1 COLA, an annuitant’s commencing date for retirement can be no later than December 31st of the previous year.

To compute the prorated COLA for the first year:

1. Determine the number of months on the annuity roll at the time of the COLA from the chart below.

2. Divide the COLA rate by 12 and multiply the answer by the number of months on the annuity roll.

3. Round the answer to the nearest one-tenth of percent. The result is the prorated COLA.

(COLA rate/12) x (number of months on annuity roll) = Prorated COLA

If Monthly Annuity Commences During:

Number of Months on Retirement Roll

December of previous year






































The following example illustrates:

David is a CSRS annuitant who retired from federal service on June 30, 2018. His retirement became effective July 1, 2018. The 2019 COLA for CSRS annuitants was 2.8 percent. David’s COLA for 2019 was prorated as follows:

Number of months on CSRS retirement roll during 2018 = 5 (July through November, inclusive)
5/12 x 2.8% = 1.17%
(Rounded to the nearest one-tenth of one percent equals 1.2 percent)


Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant and IRS Enrolled Agent in Silver Spring, MD.  Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. 


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