COLA’s, Pay Raises and the Federal Community

By • August 18, 2005 0 Comments

Pay issues impact all federal employees and retirees. These issues cut across all grade levels and occupations throughout government. They also impact federal employee retirees. Each group has its own interests and concerns.

With major changes in the civil service structure, national elections, changes to appeal rights for federal employees, and other significant events in the civil service system, one issue always stands out. Anything to do with pay issues will generate comments and concerns.

Any news organization that writes for the federal community knows this and responds accordingly. Oftentimes there isn’t much new or exciting to generate interest. Congress may be out of town, the General Counsel for the FLRA may not be appointed and therefore not issuing complaints, and many of our readers are at the beach or up in the mountains or perhaps taking a cruise. But, as news items on pay issues are of interest, and seem to have new wrinkles on regular occasions, here is one more item that will surprise some readers.

One of the largest interest groups in the federal community is federal retirees. We get a considerable number of comments from readers who are retirees and often these comments concern their annual cost of living increase. Often, the comments are along these lines:

“Costs for federal retirees are going up all the time–probably just as much as costs for active federal employees. We don’t get promotions or within-grade increases so we should at least get the same pay raise as most of the federal workforce but we always seem to get less. Our COLA increase doesn’t even cover the total increase for our health insurance this year.””At this rate, my federal annuity won’t even cover my health insurance premiums. Each year for the past several years, I compare my health insurance premium increase to my COLA and I am getting further in the hole each year. How come we can’t get the same percentage pay increase as current federal employees get?”

At the same time, we get comments from federal employees along these lines:

“This year’s cost of living increase we got from Congress and the President doesn’t even cover my increase in commuting costs because gasoline has gotten so expensive. Why don’t our COLA increase keep up with expenses?”

With different groups within the federal community having their own interests, it is certain everyone will not be happy. Some readers will find this good news. Others will probably turn red and scream at their co-workers (or perhaps this author). But here are a couple of facts for you to digest.

Last year, federal employees received an average pay raise of 3.5%. While that did not make a lot of people experience ecstasy or anything close to it, it still was not a bad pay increase when looking at what most taxpayers probably got in their jobs.

And, while the average federal employee got 3.5%, what about federal retirees? They got a cost-of-living increase of about 2.7% if they retired in December 2003 or earlier (Check out the OPM announcement for more details and clarifications).

Why the difference? Most federal employees don’t get a cost of living increase. (Check out this recent article for some feds who do get a COLA.) They get a pay raise. As noted above, they may also get a within-grade increase or a promotion. In most years, this works out better for active federal employees–as it did in 2005–because they often get a bigger increase than retirees. The pay raise may be higher or lower than the inflation rate depending on what Congress and the President ultimately decide they can live with.

There is no requirement that the pay raise for most federal employees has to be higher than the COLA received by retirees. For 2006, federal employees will get a pay raise. It is uncertain how high that pay raise will be but 3.1% is likely.

What about federal retirees? They will get a COLA increase. How much this increase will be is unknown until the final figures are in. Here is how OPM calculated the COLA increase in 2005: “…by computing the percentage increase in the consumer price index (CPI) for urban wage earners and clerical employees….” For those readers who have (or aspire to have) a PhD in statistics, check out the Department of Labor’s summary of the consumer price index.

So, while OPM does not know what the COLA increase will be for retirees in 2006, the rapid increase in the cost of some products will probably drive the COLA higher. The result may be that some federal retirees will receive a higher pay raise than those still working for Uncle Sam.

While interpreting the data is best reserved for those with a statistical background (which does not include those of us who majored in English–a much different language), the press release from the government indicates a current increase of about 3.3% for urban wage earners and clerical workers for the past twelve months. There are still two months to go in the time to calculate the next COLA but, for those who regularly watch CNBC at work to keep up with the nation’s latest business news, you know that inflation may be gaining traction in some economic sectors.

The final result: some federal retirees will be happier than some active federal employees.

© 2014 FedSmith Inc. All rights reserved. This copyrighted article may not be reproduced without express written consent of FedSmith Inc.

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About the Author (  |   )

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletter and a co-founder of two companies and several newsletters concerning federal human resources.

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