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Federal Eye
Posted at 06:30 AM ET, 07/12/2011

Change in COLA Formula Opposed


President Obama and House Speaker John Boehner discuss debt ceiling at the White House Monday. (Charles Dharapak - AP)
An organization that advocates for federal employees and retirees has said a potential change in the formula used to determine inflation adjustments in federal retirement, Social Security and some other inflation-adjusted benefits “will make it even more difficult for these Americans who live on already-thin fixed incomes to get by in these tough times.”

Eye Opener

The National Active and Retired Federal Employees Association, better known by its acronym NARFE, was reacting to one option being circulated to hold down government spending in connection with raising the public debt ceiling.

Negotiations over raising that ceiling remain tense as President Obama and Congress continue to debate the issue. Republicans and Democrats are most divided over the issue of taxes; NARFE and other federal employee-focused organizations, however, fear potential shifts in federal government retirement benefits.

Unlike the pensions of many private sector retirees, federal retirement benefits are inflation-adjusted. Most of those currently retired are under an older retirement program called the Civil Service Retirement System, which annually increases benefits according to the consumer price index for urban wage earners and clerical workers, called the CPI-W. Most current employees will draw benefits after retirement from a newer system called the Federal Employees Retirement System, which provides somewhat limited inflation adjustments.

Social Security benefits, military retirement benefits and certain veterans benefits also are linked to the same inflation measure. While cost-of-living adjustments typically are paid out each January, in 2010 and 2011 benefits did not increase in any of those programs because the CPI-W was in negative territory.

However, in the measuring period toward a January 2012 adjustment, inflation already is up by more than 3 percent, with four months remaining.

One option raised in various debt ceiling talks is changing to a different measure, called the “chained” CPI. That measure tries to account for changes in consumers’ buying habits when prices increase for certain goods whose costs are measured by the CPI — buying more chicken, for example, if the price of beef increases substantially.

That idea has been raised numerous times in the past. Earlier this year, the Congressional Budget Office estimated that using the chained CPI would result in inflation adjustments averaging about a quarter of a percentage point less than under current practice. It said that on average, a CSRS annuitant would receive about $3,900 less over 10 years, a FERS annuitant about $1,000 less, and a military retiree about $3,000 less.

“Retired and active federal employees have served our country proudly and should not be singled out to bear the burden of fixing a budget problem they did not create,” said Joseph A. Beaudoin, NARFE president.

By  |  06:30 AM ET, 07/12/2011

 
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