1.7% COLA for Retirees… What About Current Federal Employees?

By on October 22, 2014 in Pay & Benefits, Retirement with 140 Comments

It is official: the cost of living adjustment (COLA) for 2015 will be 1.7%.

Based on comments from past years, here is one of the first questions many readers will ask: “I am still working for the federal government. Will my pay also go up 1.7% in January?”

Here is the quick answer: No, your pay will not go up 1.7% as a result of a COLA adjustment if you are still working as a federal employee. The COLA adjustment only applies to federal retirees (and it applies to some retirees in a different way than for others.)

Any federal employee pay increase in 2015 is not a COLA. Federal retirees and Social Security recipients receive an annual cost of living adjustment in most years based on a pre-determined formula based on inflation. Federal employees do not receive a pay raise in the same way. The reality is that any federal pay increase is determined through the political process between the two chambers of Congress and the president. In all likelihood, the 2015 federal pay raise will be an across-the-board 1% raise. (See Obama Calls on Feds to Do Their “Fair Share” With 1% Pay Raise for 2015) For those who want to see what this will amount to for your pay, grade and geographic location, check out the GS Pay Calculator that will display the value of a 1% pay raise.

This is an election year. It is generally not popular for a person running for office to be advocating higher pay for the federal workforce. The economy has not recovered and to the extent it has recovered, it has been the slowest economic recovery since World War II and many voters have lost their jobs, are no longer looking for work, or their salary may have gone down with a reduction in the number of hours worked, etc. Voting for a federal pay raise would be seen as political suicide for many in Congress.  The exceptions, of course, are those running for office in areas such as the Metropolitan Washington, DC area where there are so many federal employees living and voting.

That may not be fair for a variety of reasons. But, federal employees work in a political environment and a federal pay raise for the workforce is determined by the political process rather than a system, such as the annual COLA determination, that is implemented automatically.

While the COLA determination is automatic, what will it mean in terms of dollars for the average federal retiree?

Most federal retirees are under the Civil Service Retirement System (CSRS) according to the Office of Personnel Management (OPM). The average monthly payment for these CSRS retirees as of October 1 was $3,303 under the CSRS system. So, for these federal retirees, they will receive about $50 more per month beginning in January. Depending upon the amount of your annuity and the health insurance plan you select for 2015, this $50 increase may (or may not) exceed the increase in cost of your health insurance next year. OPM has announced that the average health insurance premium increase for 2015 will go up 3.2%. That depends on how the increase is calculated. (See the FEHBP database to find the cost of FEHB premiums for 2015.)

The government pays about 70 percent of federal health insurance premium costs overall but, because of the way the premium sharing formula works, the average premium for the insurance holder will go up about 3.8 percent (or 3.2% based on OPM’s calculations) while the government cost will rise 3 percent. (See About Those 2015 Health Insurance Premium Rates)

For those whose expenses are in danger of exceeding your overall income, it may be time to start budgeting and following it closely.

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

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

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