Federal Retirees: Will You Receive a Full or Prorated COLA?

The 2018 COLA increase will be reflected in payments for federal retirees in January 2018. Some will receive a full COLA; others will receive a prorated COLA.

As we get closer to the end of the calendar year, some FedSmith readers are contemplating retirement.

Some federal retirees, military retirees and Social Security recipients will receive a 2% cost of living adjustment (COLA) reflected in their payment which will arrive in January 2018.  The increase is effective in December 2017 and reflected in the January payment.

Who will (and who will not) receive the full COLA?

How is the COLA Calculated?

Determining the amount of the COLA for the next year is determined through an automatic formula that is not easy to understand. The COLA is determined by calculations using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The CPI-W is the index used for measuring increases in the prices of consumer goods such as food and beverages, housing, clothing, and gasoline. The two percent increase for 2018 was determined by computing the percentage increase in the CPI-W from third-quarter months of July, August and September. To trigger a COLA for the upcoming year, the average CPI-W for the third quarter must be greater than the highest previous third-quarter average. For the 2018 COLA, the differential was 2 percent.

Will You Receive a COLA Next Year?

One common question concerns when a person has to retire to receive the full COLA. The question is usually worded something like this: “I am retiring at the end of December this year. Will I receive the full retiree cost-of-living adjustment (COLA) payment in January?” The quick answer is “no.”

For CSRS Employees

A federal employee would have had to retire no later than November 30, 2016 to receive the full COLA. He would have to retire by no later than October 31, 2017 to receive a prorated COLA. This assumes an employee is under the CSRS retirement system.

For FERS Employees

If an employee is covered by 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 receive a COLA (unless he is a special category employee). FERS and FERS Special Cost-of-Living Adjustments are not awarded until a person is 62—except for disability, survivor benefits, and other special provision retirements.

What About TransFERS Employees?

Employees who voluntarily transferred from CSRS to FERS during a federal career are treated differently than “pure” CSRS or FERS employees. A TransFERS employee will receive a CSRS COLA on the CSRS portion of the annuity and a FERS COLA on the FERS portion of the annuity (assuming the retiree meets the applicable age requirement).

Will You Receive a Full or a Pro-Rated COLA?

To receive the full COLA in 2018 payments, a retiree or survivor annuity must have started no later than December 31, 2016. If not, the increase will be prorated under either the FERS or CSRS retirement plans. A prorated annuity payment will be one-twelfth of the increase for each month a person received benefits.  For example, if the retirement benefit started November 30, 2017, the prorated COLA would be one-twelfth of the full COLA.

When is the COLA Paid?

OPM says this about when to expect to see a COLA adjustment in your annuity payment:

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.

For more information on annuity payments, check out the website from the Office of Personnel Management.

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