Annual cost-of-living adjustments (COLA) safeguard the financial security of federal retirees and their loved ones. Every year, the government calculates and pays out COLA to help offset the toll that rising inflation takes on federal retirement benefits.
Most federal employees enjoying or approaching retirement recognize the importance of COLA. However, understanding how to calculate it isn’t always so straightforward.
In this blog post, we’ll discuss how cost-of-living adjustments work for federal employees. We’ll answer some common questions, including:
- What is the COLA for federal employees based on?
- How is it calculated? and
- Who is eligible to receive benefits?
Remember, always speak to a professional if you have specific questions about your federal employment benefits. An attorney trained in federal employment law is the best resource for qualified advice tailored to your unique situation.
What Is the COLA for Federal Employees Based On?
Annual cost-of-living adjustments for federal retirement benefits are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the change in consumer purchasing power over time. To do this, the Department of Labor’s Bureau of Labor Statistics (BLS) collects monthly data on the cost of goods and services across the country.
This includes information about the cost of food, housing, clothing, transportation, healthcare, education, recreation, and utilities. The Department of Labor uses this data on the inflation rate to make decisions about monetary policy and salary increases for civil servants.
Since COLA aims to protect federal retirement benefits from eroding due to inflation, the CPI-W is an essential factor in the yearly cost-of-living adjustment calculator. Close to the end of the calendar year, the economists at the BLS compare the CPI-W from July, August, and September to the CPI-W from those months in the year before. Based on the rate of change in consumer prices, the BLS calculates whether eligible federal retirees can receive a COLA.
For example, in December 2023, the federal government announced the year’s COLA payments based on the change in CPI-W from the third quarter of 2022 to the third quarter of 2023. Retirees and beneficiaries eligible for COLA should have received their payments in January 2024.
Is COLA the Same for All Federal Employees?
No. The amount of COLA you’re eligible for depends on your federal retirement plan. Let’s break down the two major types of retirement systems that federal employees fall into.
Federal Employees Retirement System (FERS)
FERS is the current plan for managing retirement benefits for federal employees. It became effective in 1987 for all federal employees hired after 1983.
For FERS beneficiaries, COLA payments can be broken down as follows:
- If the increase in CPI-W is 2% or less, COLA is equal to that amount;
- If the increase in CPI-W is between 2% and 3%, COLA is 2%; or
- If the increase in CPI-W is more than 3%, COLA is 1% less than that amount.
In all cases, the amount of a COLA is rounded down to the next whole dollar.
Civil Service Retirement System (CSRS)
You may be enrolled in the CSRS if you’re a long-time federal employee who began working before 1984. COLA calculations are simpler for CSRS employees. The adjustment is always equal to any positively calculated increase in CPI-W.
The COLA for federal employees in 2024 granted FERS beneficiaries an increase of 2.2%. For CSRS beneficiaries, the adjustment was 3.2%.
To receive the full COLA payment, you must have been in retirement and receiving benefits for the full calendar year. If you retired within the last year, your COLA amount will be prorated. For example, imagine you retire in February 2024. By January 2025, when COLA is paid out, you’ll have been retired for 10 out of 12 months of the fiscal year, so you’ll receive ten-twelfths of whichever COLA payment you’re entitled to.
Who Can Receive COLA?
Eligibility for COLA also differs between the two federal retirement systems.
Under the current FERS plan, you’re eligible for COLA if you are:
- A retiree over age 62,
- A retiree of any age from a special category profession (e.g., law enforcement officer, firefighter, air traffic controller, military reserve technician),
- A disability beneficiary of any age (unless your benefits are more than 60% of your “high-three” average salary), or
- A survivor of any age.
However, under CSRS, all retirees and eligible survivors can receive cost-of-living adjustments to benefits, regardless of age.
Questions About Your Federal Benefits? We Have Answers
Navigating federal retirement plans can be overwhelming. Since cost-of-living adjustments change yearly, ensuring you’re receiving the benefits you’re entitled to can be challenging. If you have questions, don’t settle on generic advice from any employment lawyer.
Contact the Federal Employment Law Firm of Aaron D. Wersing for qualified, reliable support from a trained federal employment lawyer. For years, our team of legal professionals has been helping shed light on the ins and outs of FERS and CSRS for beneficiaries and their loved ones.
Our advocates can help you understand the rights granted by your federal retirement system and ensure you’re fully compensated for your years of service. To schedule a consultation, contact our office by phone or online.
Aaron Wersing, Attorney at Law
Aaron Wersing is the founder of the Law Office of Aaron D. Wersing. Mr. Wersing graduated from the Georgia State University College of Law with a Doctorate in Jurisprudence and was the recipient of the CALI Excellence for the Future Award. Mr. Wersing previously attended the University of Georgia, where he received a Bachelor of Business Administration degree in Accounting. Mr. Wersing is an active member of his local community. Mr. Wersing acts as a volunteer attorney with Houston Volunteer Lawyers, the pro bono legal aid organization of the Houston Bar Association. He is also a member of professional legal organizations such as the National Employment Lawyers Association and the American Inns of Court. To reach Aaron for a consultation, please call him at (833) 833-3529.
Rate this Post
Loading...