FedSmith recently received a question from a prospective retiree about the 2017 retiree cost-of-living adjustment (COLA) payment. The individual is planning to retire on 1/3/2017 and inquired if he would have to be off the rolls by 12/31/16 to receive the COLA.
The employee would not receive the adjustment in either situation. He would have had to retire no later than 11/30/2015 to receive the full COLA, and would have to retire by no later than 10/31/2016 to receive a even prorated COLA.
The above paragraph assumes that the employee is under the CSRS retirement system. Though the employee did not specifically state which retirement system he was covered by, I can assume it is CSRS as he plans to retire on 1/3/2017.
If the employee were under the FERS system, in addition to having to be off the rolls by the above dates, the employee would also have to be age 62 to earn a COLA (unless he was a special category employee).
The federal retiree cost-of-living adjustment is based on the increase in the Consumer Price Index for Urban Wage Earners (CPI-W) from the third quarter of one year to the third quarter of the next year (i.e., from September 30 of one year to September 30 of the next).
The 2017 COLA is 0.3%. The retiree COLA is effective on December 1st. The December annuity payment is paid on the first business day of January.
An individual who is retiring in any given year will have their first COLA prorated by the number of full months from their annuity commencement date to December 1st. For example, if I retired on June 30, 2016 my annuity would commence on July 1, 2016 and I would receive 5/12 of the adjustment (for July through November).
The CSRS COLA is based on the full increase in the CPI-W. It is possible that the FERS COLA might trail the CPI-W by as much as 1%, though this year the two adjustments are identical. The FERS COLA will be:
- Equal to the increase in the CPI-W if the CPI-W goes up less than 2%
- 2% if the CPI-W goes up between 2% and 3%
- 1% less than the increase in the CPI-W if the CPI-W goes up more than 3%
An employee who is “transFERS” (that is, they voluntarily transferred from CSRS to FERS at some point) will receive a CSRS COLA on the CSRS portion of their annuity and a FERS COLA on the FERS portion of their annuity (if they meet the applicable age requirement).