Federal retirees will receive in January the first inflation adjustment to their annuity benefits since 2009, an increase of 3.6 percent for most, following the announcement Wednesday of Consumer Price Index figures through September.
The COLA also will be paid in Social Security and military retirement benefits, which like civil service annuities have been frozen for two years due to a period of deflation that followed the calculation of the January 2009 payout.
Those who retired under the Civil Service Retirement System will receive the full adjustment while those who retired under the Federal Employees Retirement System and who are eligible for COLAs will receive 1 percentage point less. The FERS system generally doesn’t pay inflation adjustments until age 62 except to disability retirees, survivor beneficiaries and those subject to mandatory early retirement such as law enforcement officers.
While about four-fifths of active employees are covered by the FERS system, roughly the same portion of retirees draws benefits under CSRS. That’s because CSRS generally covers those hired through 1983 while FERS generally covers those first hired in 1984 and later. The less-generous COLA arrangement under FERS was part of the law creating that system, which also includes Social Security coverage and employer contributions to the federal retirement savings program.
According to a Congressional Research Service report issued earlier this year, there were just under 1.9 million civil service beneficiaries in fiscal 2009, with an average monthly benefit of $2,899 under CSRS and $1,051 under FERS. In addition, there were about 600,000 survivor beneficiaries with average monthly benefits of $1,360 and $440, respectively.
Federal retirement COLAs are pro-rated for those who have been on the retirement rolls less than 12 months at the time of the payout. The calculation is based on the average of the index in the third calendar quarter of the last year a COLA was determined versus the third quarter of the current year.
The COLA has no direct effect on pay raises for active federal employees, since the two types of adjustments are determined in different ways. A law enacted late in 2010 froze salary schedules in place through 2012, meaning that employees received no raise in January of this year and will receive no raise in January 2012. The freeze did not stop another form of raise called a within-grade increase that is based mainly on longevity, however.
Proposals are circulating in Congress to extend the salary schedule freeze through 2013 or 2015 and also to deny within-grade increases.