How is the Cost-of-Living Adjustment (COLA) determined?
Tuesday, May 22, 2007
Federal retirees receive a cost of living adjustment (COLA) after retiring. How is the amount of this COLA determined?
The Department of Labor calculates the change in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third quarter average of the previous year to the third quarter average for the current year.
For Civil Service Retirement System (CSRS) or Organization and Disability Retirement System (ORDS) benefits, the increase percentage is applied to your monthly benefit amount before any deductions, and is rounded down to the next whole dollar.
For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar. To get the full COLA, a retiree or survivor annuitant must have been in receipt of payment for a full year. If not, the increase is prorated under both plans.
Prorated accounts receive one-twelfth of the increase for each month they received benefits. Cost-of-Living Adjustments were first prorated in April 1982. Adjustments to benefits for children are never prorated. Federal Employees Retirement System (FERS) and FERS Special Cost-of- Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements.
FERS disability retirees get the adjustment, except when they are receiving a disability annuity based on 60 percent of their high-3 average salary. Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA calculation.
Note: A benefit will not be increased if it would cause the annuitant to receive payments in excess of any cap amount specified by law.
When is the Cost-of-Living Adjustment (COLA) paid?
Cost-of-Living Adjustments are effective each December first. The adjustment appears in your payment on the first business day of January, which is when your benefit for December is paid. Federal Employees Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements. FERS disability retirees get the adjustment, except when they are receiving a disability annuity based on 60 percent of their high-3 average salary. Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA calculation.
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