Feeling the Impact of Inflation: 6.2% COLA (So Far) for 2009
By Ralph Smith
Wednesday, August 20, 2008
While the pay raise for the active federal workforce appears to be hamstrung by political disputes surrounding approval of the fiscal year 2009 budget and whether prohibitions on drilling for oil will continue with the large increases in the price of gas and heating oil, the automatic cost of living adjustment for federal retirees keeps marching on.
As of today, the figure for next year's COLA increase stands at 6.2%. There are still another two months to go into calculating next year's automatic increase so the figure is likely to change before the September figures make the COLA increase final. It could go down but, based on the trend so far this year, it will be even higher than the 6.2 figure.
With the possibility of a 3.9% average pay increase for active federal GS employees, the 6.2% figure sounds good by comparison. (See Projecting Your 2009 Federal Pay Increase) 6.2% would be the highest figure for recent years (it was 2.3% for 2008 and 3.3% for 2007) although Social Security recipients got as much as 14.3% back in 1980 and 11.2% in 1981--before the FERS system went into effect for federal employees.
In effect, it is possible that federal retirees will get a pay increase of 7% of more while federal employees still working would get an average increase of about 3.9%--after Congress passes the necessary appropriations or a continuing resolution is passed that contains the necessary approval for the 2009 pay raise. One big difference, of course, is that the COLA for federal retirees is automatically calculated based on inflation figures while the annual raise for current employees is based on the outcome of legislation in the political process.
One reader inquired about the history of the federal pay raise wanting to know if federal employees have ever received a pay raise of 10% or greater (reflecting, perhaps, an active imagination or extreme case of wishful thinking). The answer is "yes" but the history may not be particularly enouraging. In 1945, the pay raise was 15.9%. That was followed by a 14% increase in 1946 and an 11% raise in 1947. In 1951, the pay raise was 10% and it again went as high as 10% in 1958. It has not been that high again. No doubt, the sacrifices made in World War II and the Korean war played a role in some of these increases. (Keep in mind, in 1945 the pay cap was $10,000.)
Of course, with locality pay the federal pay system has become increasingly complex and some areas of the country have much larger pay increases than the nationwide average (and some have less than the average). You can see the wide variation just in 2008 from the table in this article.
In short, federal retirees are poised to get the largest annual increase they have had in some time. That is certainly much better than some Americans will get if they are under a defined pension benefit that does not take inflation into account. Still, the bad news is that the purchasing power of each recipient has been reduced. And, if you are a current federal employee, an average increase of 3.9% (or whatever the final figures happens to be) will mean that your purchasing power is still lower than the previous year because of the corrosive power of inflation.
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