Cost-of-Living Adjustments for Federal Civil Service Annuities

Cost-of-Living Adjustments
for Federal Civil Service Annuities
Patrick Purcell
Specialist in Income Security
Domestic Social Policy Division
Summary
Cost-of-living adjustments (COLAs) for the Civil Service Retirement System
(CSRS) and the Federal Employees Retirement System (FERS) are based on the rate of
inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical
Workers (CPI-W). COLAs for both CSRS and FERS are determined by the average
monthly CPI-W during the third quarter (July to September) of the current calendar year
and the third quarter of the previous year. The “effective date” for COLAs is December,
but they first appear in the benefit checks issued during the following January.
All CSRS retirees and survivors receive COLAs. Under FERS, however, non-
disabled retirees under age 62 do not receive COLAs. Survivors and disabled retirees
are eligible for COLAs under FERS regardless of age. CSRS pays a COLA that is equal
to the percentage change in the CPI-W during the measurement period, but COLAs
under FERS are limited if the rate of inflation is greater than 2.0%. If the rate of
inflation during the measurement period is between 2.0% and 3.0%, the COLA under
FERS is 2.0%. If inflation is greater than 3.0%, then the COLA for FERS benefits is
equal to the CPI-W minus one percentage point.
Congress passed the first law requiring automatic COLAs for federal civil service
retirement benefits in 1962, and it has adjusted either the formula by which they are
calculated or the date on which they take effect more than a dozen times since then. The
next COLA for civil service retirees will be effective in December 2008 and will appear
in checks issued in January 2009. CSRS retirement benefits will increase by 5.8%.
FERS retirement benefits will increase by 4.8%.
COLA Formulas and Amounts
CSRS applies only to federal employees first hired before 1984. It is closed to new
entrants and the program will expire with the death of the last CSRS annuitant sometime
around the year 2075. All civilian federal employees who were first hired in 1984 or later
are covered by FERS, as are employees who voluntarily switched from CSRS to FERS
View Page Image

during “open seasons” that were held in 1987 and 1998. The FERS program began
operating on January 1, 1987.
COLAs for CSRS annuities are based on the average monthly percentage change in
the CPI-W in the third quarter (July to September) of the current calendar year compared
to the third quarter one year earlier. Adjustments are effective on the first day of the
month preceding the month in which they are first paid. For example, the most recent
CSRS COLA of 2.3% was effective December 1, 2007, and was first applied to benefits
paid in January 2008. It was equal to the average monthly percentage change in the CPI-
W between the third quarter of calendar year 2006 and the third quarter of 2007.
COLAs for benefits paid under FERS also are based on the percentage change in the
CPI-W from third quarter to third quarter, but payment of COLAs under FERS is limited
according the eligibility category of the beneficiary and the rate of inflation. COLAs are
not paid to non-disabled FERS retirees as long as they are under age 62. COLAs are paid
to survivors and disabled FERS retirees of any age after the first year of disability. All
COLAs paid under FERS are limited if the rate of inflation exceeds 2.0%, according to
the following formula:
Increase in CPI-WIncrease (COLA) in FERS Benefits
Under 2.0%Same as CPI-W increase

2.0% to 3.0%2.0%


More than 3.0%Increase in CPI-W minus 1 percentage point
History of Legislation Affecting COLAs for
Civil Service Annuities
P.L. 87-793 (enacted in 1962) was the first law that provided for automatic
adjustments in civil service retirement and disability benefits whenever the CPI in the
current year exceeded the CPI in the base year (the year in which the last adjustment
occurred) by 3.0% or more. In 1965, this was changed to require an adjustment in
benefits whenever the CPI for a given month was at least 3.0% higher than in the month
when the last adjustment was made, and remained at that level or higher for three
consecutive months.
P.L. 91-93 (enacted in 1969) added one percentage to COLAs in addition to the
percentage change in the CPI in order to offset the erosion of benefits that had occurred
as a result of the time lag in the adjustment formula. (P.L. 91-179 did the same for
COLAs paid to military retirees.)
P.L. 94-440 (enacted in October 1976) repealed the one percentage point addition
to COLAs. In addition, this law provided for automatic semi-annual adjustments in
benefits based on the change in the CPI from June to December (effective the following
March 1) and December to June (effective the following September 1).
P.L. 97-35 (Omnibus Budget Reconciliation Act of 1981) replaced semi-annual
COLAs with annual COLAs based on the December-to-December change in the CPI,
payable in March of the following year.
View Page Image

P.L. 97-253 (Omnibus Budget Reconciliation Act of 1982) delayed the
implementation of COLAs by one month in FY1983, FY1984, and FY1985. The FY1983
COLA was effective April 1 rather than March 1. The FY1984 COLA was scheduled for
May 1 and the FY1985 COLA was scheduled for June 1. This law also mandated that
non-disabled retirees under age 62 would receive 50% of the projected CPI plus the full
difference in the actual CPI over these projections. The law specified that the projected
CPI was 6.6% for 1983; 7.2% for 1984; and 6.6% for 1985. This provision was repealed
by the supplemental appropriations law that was passed in August 1984. COLAs for
January 1985 and thereafter were to be the full amount for all retirees.
P.L. 97-253 limited COLAs in certain cases. Under the restriction, an annuity could
not be increased by a COLA to an amount that exceeded the greater of the maximum pay
for a GS-15 federal employee or the final pay of the employee (or high-3 average pay, if
greater), increased by the average annual percentage change (compounded) in rates of pay
of the General Schedule for the period beginning on the retiree’s annuity starting date and
ending on the effective date of the adjustment.
P.L. 98-270 (Omnibus Budget Reconciliation Act of 1983, enacted April 1984)
delayed the COLA scheduled for May 1984 until December (payable in January 1995).
Thereafter, all COLAs were to be effective in December and payable in January and were
to be based on the change in the average monthly CPI-W from third-quarter to third-
quarter. This formula and schedule are the same as those used to calculate COLAs in the
Social Security program, as required by P.L. 98-21 (Social Security Amendments of

1983).


P.L. 98-369 (Deficit Reduction Act of 1984) specified that civilian and military
retirement COLAs are to be paid in checks issued on the first business day of the month
following the month in which they are effective. (COLAs that are effective in December
are to be paid in checks issued in January.)
P.L. 99-177 (Balanced Budget and Emergency Deficit Control Act of 1981 (Gramm-
Rudman-Hollings)). This law suspended all civil service retirement COLAs for FY1986
and for all subsequent years in which the specified deficit reduction targets for the year
would not otherwise be met.
P.L. 99-509 (Omnibus Budget Reconciliation Act of 1986). This law reinstated
COLAs for programs in which they were subject to suspension under P.L. 99-177 for
FY1987-FY1991.
P.L. 100-119 (Balanced Budget and Emergency Deficit Control Reaffirmation Act
of 1987). This law permanently exempted the programs subject to suspension of COLAs
under P.L. 99-177 from the suspensions required by that law.
P.L. 103-66 (Omnibus Budget Reconciliation Act of 1993). This law postponed the
effective date of COLAs from December to March for FY1994-FY1996. The CPI
measurement period was not changed.
View Page Image

Table 1. COLAs in Civil Service Retirement Benefits
Effective DateaCSRS BenefitIncreaseFERS BenefitIncreaseCPI Increase During COLAMeasurement Period
December 19656.1% — 4.6%
January 19673.9 — 3.9
May 19683.9 — 3.9
March 19693.9 — 3.9
November 19695.0 — 4.0
August 19705.6 — 4.6
June 19714.5 — 3.5
July 19724.8 — 3.8
July 19736.1 — 5.1
January 19745.5 — 4.5
July 19746.3 — 5.3
January 19757.3 — 6.3
August 19755.1 — 4.1
March 19765.4 — 4.4
March 19774.8 — 4.8
September 19774.3 — 4.3
March 19782.4 — 2.4
September 19784.9 — 4.9
March 19793.9 — 3.9
September 19796.9 — 6.9
March 19806.0 — 6.0
September 19807.7 — 7.7
March 19814.4 — 4.4
March 19828.7 — 8.7
April 19833.9 — 3.9
December 19843.5 — 3.5
December 19850.0 — 3.1
December 19861.3 — 1.3
December 19874.2 — 4.2
December 19884.03.04.0
December 19894.73.74.7
December 19905.44.45.4
December 19913.72.73.7
December 19923.02.03.0
March 19942.62.02.6
March 19952.82.02.8
March 19962.62.02.6
December 19962.92.02.9
View Page Image

Effective DateaCSRS BenefitIncreaseFERS BenefitIncreaseCPI Increase During COLAMeasurement Period
December 19972.12.02.1
December 19981.31.31.3
December 19992.42.02.4
December 20003.52.53.5
December 20012.62.02.6
December 20021.41.41.4
December 20032.12.02.1
December 20042.72.02.7
December 20054.13.14.1
December 20063.32.33.3
December 20072.32.02.3
December 20085.84.85.8
Source: The Congressional Research Service.
Note: Includes pensions for Members of Congress.
a. Benefit increases are actually paid in checks issued the first of the following month.
View Page Image