Legislation has been reintroduced that has the potential to increase cost of living adjustments (COLAs) for some retired federal employees.
The Equal COLA Act (H.R. 1254) has been reintroduced by Congressman Gerry Connolly (D-VA). The bill would change the way COLAs under the Federal Employees Retirement System (FERS) are computed so that FERS retirees would always get the full COLA. It was introduced last fall in the previous session of Congress but failed to advance.
As it currently works, FERS retirees will sometimes receive a smaller COLA than CSRS retirees. Connolly says this is unfair, so he wants to change the FERS formula so that retirees under both systems get the same COLA in all cases.
“Over time, we now realize that this two-tiered system fails to protect FERS retirees who are living on a fixed income,” Connolly said. “This legislation will rectify this unfair system and ensure these dedicated public servants are protected throughout their retirement.”
The notion of changing the FERS COLAs gained political popularity recently when it was announced that federal retirees would receive the largest COLA in 7 years for 2019. That amount came out to be 2.8%. CSRS retirees get that full amount, but for FERS retirees, the amount came out to 2% in most cases. The table below illustrates the current FERS formula.
|If the CPI is:||Then the COLA is:|
|<= 2%||COLA = CPI increase|
|> 2% and <= 3%||COLA = 2%|
|> 3%||COLA = CPI – 1%|
When the annual COLA turns out to be 2% or less, it is not an issue since FERS retirees get the same amount as retirees under CSRS.
The tradeoff with the reduced COLA for FERS retirees is that the FERS retirement system aims to make up the difference by offering the opportunity to invest in the Thrift Savings Plan along with a match from the government, whereas federal employees who worked under CSRS did not have this benefit. FERS retirees are also eligible for Social Security whereas CSRS retirees are not.
For additional details on how the COLA works, see 2019 to Have Largest COLA Increase in 7 Years.