4.1%! Federal Retirees Can Look Forward to Bigger Than Expected 2006 COLA

Many federal retirees can look forward to a larger than expected increase in their annuity check in January 2006.

A larger than expected 2006 COLA should make retired federal employees very happy next year.

Federal employees who are retired under the Civil Service Retirement System (CSRS) are probably generally happy. They have a defined benefit package. That means they know what their annuity is each month. Once the check starts coming (which sometimes takes awhile), it doesn’t bounce because it is from Uncle Sam. They probably have money invested in stocks and bonds or mutual funds but, for most CSRS retirees, it isn’t the primary source of their income.

So, while retirees may be playing golf, checking out the latest beach scene during the week while the crowds are lower, or visiting their grandchildren out of town, employees who are not yet retired are still going to work and working to solve the nation’s problems.

But, if you are an active federal employee, don’t be too surprised if you get a call or an e-mail from your former colleague along the lines of “I am getting a 4.1% cost of living increase in my January check–sorry you won’t be getting the same!”

Actually, active federal emplyees don’t know what their raise will be in January. It is possible Congress could decide to be very generous and give a bigger raise than expected to federal employees. But, as we pointed out in a recent article on the subject (See Federal Pay Scenario: The Good, The Bad and The Ugly) that isn’t likely to happen with the huge federal deficits facing Uncle Sam. Congress is looking for ways to cut spending–at least in theory–and higher pay for federal employees is not likely to command attention in the nation’s press.

The COLA for retirees is determined by law. The salary for active federal employees is not determined by a set formula.

Active federal employees may not be happy with this set of circumstances precisely because they are not playing golf or doing other things that retirees can do during the week now that they are not working. For continuing to work and continuing to commute every day, the pay rate for active federal employees is likely to be smaller than the “raise” given to retirees. Of course, retirees don’t get a within-grade increase or a promotion as active feds may get.

The 4.1% increase will be the largest in more than a decade. The increase is more than anticipated as inflation reared its ugly head on the prices for a variety of products and services. For those with an appetite for statistics and are hungry for more data than most people want, check out the latest Consumer Price Index from the Bureau of Labor Statistics. For more information and clarification on how the COLA is calculated and how it applies to various federal retiree groups, check out the OPM explanation for last year’s figures.

It may not be fair. It may not be what active feds want to hear. But this is the situation. There is no sense in getting upset since active federal employees won’t know how much money they will get until later this year (or perhaps early next year). No doubt, some federal employees will decide to go ahead and retire. If you are in a situation where you are eligible to retire, check out the article titled Retiring? Think About This!! before you make a decision on a momentary impulse.

A number of readers focus on the negative apsects of their federal employment. Here is the (very) bright side. The federal government isn’t going bankrupt–even if it spends hundreds of billiions dollars more than it receives in tax revenue. Your retirement program will not be turned over to the Pension Benefit Guaranty Corporation as is happening to a number of former employees of large companies where the employees thought they had a safe, secure, and profitable retirement plan awaiting them.

Your retirement is safe and secure. You have a much better deal than the vast majority of your colleagues in the private sector.

So, if you are retired under the CSRS system, enjoy thinking about your upcoming COLA increase. If you are still working, you may have to put up with annoying needling from your retired colleagues but keep in mind you can (eventually) look forward to a good retirement as well.

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. Follow Ralph on Twitter: @RalphSmith47