What Happened to My COLA for 2010?

By on December 27, 2009 in Current Events with 0 Comments

2010 is almost upon us and, for many readers, it is time to begin answering the question: "How much will I make next year?"

In the past few days, we have received questions from readers who are retired. Although worded differently, the general question is:  "What happened to my COLA increase for 2010?"

Where Happened to My COLA Increase?

Some readers obviously enjoy retirement and don’t pay much attention to political events that may impact their income in coming months or years.

In the past few days, we have received email from readers wanting to know why they are not receiving a COLA increase in 2010 since working federal employees are receiving a pay increase that will reportedly average about 2%. These emails were sent just before or after the Christmas holiday.

My hunch is that some of these folks just noticed they are not getting an increase in their annuity since the Office of Personnel Management is now distributing its annual "Notice of Annuity Adjustment." Perhaps the OPM notice makes the lack of a COLA increase more official.

Other readers who are retired are wondering why there is no COLA increase as they have read that there was some inflation last year—even if the amount of inflation was minimal. Others seem to think that they should get an increase in their retirement every year and don’t understand why they are not getting one this year.

And, to the chagrin of some readers, people who are still working generally make more than those that are retired. That will not surprise anyone but, for those who are questioning the fairness of why federal employees are getting a raise (when they make more) and retirees are not getting a COLA (when they make less), the answer is because the methods for determining the increase in pay are different.

The answer to questions about the COLA are related to the Consumer Price Index (CPI) that is used to determine how much money will be added to your annuity. This is the same index used to determine how much those on Social Security will receive next year.

The CPI does not necessarily reflect the types of things that people are actually buying when you are retired.

In some years, (2009, for example) federal retirees got a bigger pay raise than those employees still going to work for the federal government. In January 2009, there was a COLA adjustment of 5.8%. The average pay increase for working feds averaged 2.9%. (See Executive Order Issued on 2009 Pay Increase: Where Are the Biggest Winners Located? and 2009 COLA Jumping 5.8% for Some Federal Retirees)

The cost of health care has gone up. You will notice that your health insurance premiums have increased for 2010. The cost of many consumer goods has gone down. Under the regular consumer price index, transportation is 18% of the index; education is 6% and medical care is only 6%. Retirees are more likely to be going to a doctor or a hospital than getting a college education so the price index does not necessarily reflect your real expenses.

Congress has been aware of this for some time and the solution to the problem already exists. There is another index that could be used. It is called the CPI-E (Consumer Price Index-Elderly). The use of  this index for calculating your Social Security or federal retirement annuity has not been authorized so your 2010 COLA will not increase. In fact, using the CPI-E would have an impact on the federal deficit which is already skyrocketing so much that the government of China is warning the United States that we cannot keep borrowing so much money. As the federal debt is expected to increase even more than current levels in the next several years, the chances of Congress passing another bill to add more to federal programs that are already in financial trouble seems unlikely.

And, to answer another question from some federal retirees, your 2010 COLA is not determined by the inflation rate for all of 2009. The calculation period for your COLA ended in September 2009. The inflation rate is compared to the end of September 2008 so inflation that has occurred since September is not relevant to your 2010 annuity payment.

That is what happened to your COLA increase for 2010.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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 newsletters and is a co-founder of two companies and several newsletters onĀ federal human resources.

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