2009 COLA Jumping 5.8% for Some Federal Retirees

At 5.8%, the 2009 COLA will be the highest increase for federal retireesin about 25 years.

We have been getting numerous email from readers of the FedSmith site asking about the 2009 COLA (cost of living adjustment) for federal retirees. The good news is that it will be 5.8%–the largest amount in about 25 years. The bad news: It will be less than it appeared that it would be earlier this year when the index for determining your next COLA reached a high of 6.2%.

What is the Difference Between the COLA and the Federal Pay Raise?

To try and answer the most common question from readers that comes when this figure is released, here is a clarification that is important to federal employees who are currently employed by Uncle Sam.

Many people get confused between the cost of living adjustment (COLA) increase for retired federal employees that is determined annually and the annual federal pay raise for federal employees. These are different issues. The figures are usually different and the amounts for retirees and active federal employees are determined using different methods.

How the Annual COLA is Determined

COLA’s are determined automatically. The Department of Labor issues data about the inflation rate for the past year and the amount is determined from those figures. 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.

Last month, we posted an article that showed the annual COLA increase for employees running about 6%. That was actually lower than appeared likely earlier in the year as the figure had been up to 6.2%. With an economy that has been slowing and is probably already in a recession, inflation has declined so the COLA increase has declined as well with the result being the 5.8% 2009 COLA increase. The increase in 2008 was 2.3%.

The 2009 Annual Federal Pay Raise

The average annual pay raise for federal employees will be 3.9%. Here is a summary of the status of the general schedule pay raise.

Before you head out to the store to spend the extra money you will be getting in January, keep in mind that the average increase in the federal health benefits payments for employees in 2009 will be 8%. Some plans will be considerably more than that while others will be less. Check out the best deal for your situation to maximize your benefits and your financial security.

Which Federal Retirees Get the 2009 COLA?

Finally, a number of readers want to know if every retiree will get the full COLA for next year. The answer is simple: no, the amount may differ depending on your circumstances.

According to the Office of Personnel Management, here is how the COLA works for different groups.

First, for Federal Employees Retirement System (FERS) or FERS Special benefits employees: 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.

Second, to get the full COLA, without regard to whether you are in FERS or the CSRS system, 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.

Third, 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.

If you have more questions, you can go to the OPM website for more information.

Congratulations to all of our readers who now know how much their “raise” will be for next year!

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