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Cost-of-Living Adjustments for Federal Civil Service Annuities

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Publication Date: October 2007

Publisher(s): Library of Congress. Congressional Research Service

Series: 94-834

Topic: Government (Government employees)

Abstract:

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, nondisabled 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 2005 and will appear in checks issued in January 2006. CSRS retirement benefits will increase by 4.1%. FERS retirement benefits will increase by 3.1%.