Your 2019 COLA and Federal Employee Pay Raise

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By on May 3, 2018 in Pay & Benefits with 0 Comments

Three stacks of coins sitting on top of an accounting spreadsheet next to a pen and calculator

As the calendar rolls along each month, more readers start wondering about their budgets for the coming year. Each year, a couple of questions start popping up, and this year is no exception.

What About a COLA for 2019?

The first question is, “Will there be a cost of living adjustment in 2019?” And, if so, how much of an increase will there be?

In October 2017, federal retirees learned they would receive a 2.0 percent COLA. This was the largest increase in six years. This applied to civil service annuities beginning in January 2018. The same increase applied to Social Security benefits and military retirement annuities. No COLA was given in three of the past eight years based on the formula for calculating COLA’s.

1.58% Increase in 2018 Shows a Trend

The 2019 COLA amount will not be available until mid-October. Based on the current inflation trend, it is likely there will be some increase in 2019. As of last month, the increase in inflation is 1.58%. While that is a trend, in the final analysis that is not what determines the 2019 COLA increase.

A full year of inflation data from the Consumer Price Index (CPI-W is used) is not the important data. Here is how it works:

  • CPI-W readings are taken from the third quarter (July – September) of the current year.
  • This data is compared to the average CPI-W reading from the third quarter of the previous year (2017).
  • The average reading from the third quarter of the current year (2018) is compared to the figure from the third quarter of 2017.
  • If the average CPI-W reading goes up in 2018, then the difference, rounded to the nearest 0.1%, is what beneficiaries will receive as an increase in 2019.

Hurricanes and a COLA

What do hurricanes have to do with a COLA decision? There can be a significant relationship.

The hurricane season is often active in July – September each year. In 2017, astute readers will recall that hurricanes in the Gulf of Mexico shut down oil platforms and refineries. Oil prices went up. The inflation calculation for 2018 also went up. As a result, the COLA for 2019 went up to 2%.

We don’t know what will happen in the third quarter of this year. There is a good chance there will be a COLA. The amount will depend on a variety of factors, perhaps including the impact of hurricanes on the economy.

Who Receives a COLA?

First, for those former federal employees who are under the Federal Employees Retirement System (FERS) or FERS Special benefits employees, you may receive a different amount than other employees.

Under FERS or for FERS Special benefits, if the increase in the Consumer Price Index (CPI) is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. 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.

If the CPI is: Then the COLA is:
<= 2% COLA = CPI increase
> 2% and <= 3% COLA = 2%
> 3% COLA = CPI – 1%

Second, to get the full COLA, without regard to whether you are in FERS or the CSRS system, you must have been getting paid as a retiree for a full year.

If you are planning on retiring late in the year, you will not get the full COLA increase in 2019. If you were not retired for the entire year, the increase is prorated. You will receive one-twelfth of the increase for each month in which you received retirement 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.

What About A Federal Employee Pay Raise?

Federal employees get a pay raise. A pay raise is not the same as the COLA. In 2018, the 1.9% pay raise for federal employees was less than the amount of the full COLA increase for federal employees. The previous year, federal employees received a slightly higher amount than the full COLA amount for federal retirees and Social Security recipients.

The amount of the COLA does not directly impact any pay raise that federal employees will receive. In some years, there has been a federal employee pay freeze. So, in some years, the COLA for retirees has been larger than a federal pay raise.

It is very possible federal retirees will receive a greater COLA increase in 2019 than the amount of a federal employee pay raise.

The calculation for determining the amount of a COLA increase is done automatically. The amount of any federal employee pay raise is a political decision or at least a decision made by Congress and the president using criteria they choose to apply.

Federal Employee Pay Freeze Proposed

President Trump has proposed freezing federal employee pay for 2019. In addition, the President’s Management Agenda lays out a plan for modernizing the federal government. Among the human resources related objectives discussed is reinforcing the suggestion of a 2019 pay freeze and other cuts to federal employees’ benefits to better align overall federal compensation with the private sector.

In recent years, under two administrations, the president’s proposed pay raise figure (or a proposal to freeze pay) has become the final result. That is not a guarantee. It is an election year, so decisions may be more fluid and subject to change than usual.

But, based on the information now available, it is possible that federal retirees will receive a COLA and federal employees will not receive an annual pay raise.

© 2018 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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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

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