New TSP Annuity COLA Computation Rate Coming in March

TSP annuities will have a new formula used to calculate their cost of living adjustments starting this spring.

A recent regulatory change that will modify the calculation of cost of living adjustments to annuities in the Thrift Savings Plan has gone into effect and will be implemented in March.

The proposal was put forth late last year by the Federal Retirement Thrift Investment Board to change the cost-of-living adjustment rate used to calculate the annual increase for annuities with an increasing payment option. It has been adopted and will take effect March 1 to coincide with the new TSP annuity contract recently awarded to Metropolitan Life Insurance Company, the insurance company selected to handle the TSP’s annuity contract.

Currently, when a TSP participant elects to receive an annuity with an increasing payment option, the increase in the amount of his or her monthly annuity payment each year is based on the annual change in inflation as measured by the Consumer Price Index (CPI). Increases cannot exceed 3% per year. The new rule will change the TSP annuity COLA to a flat rate of 2% per year.

The FRTIB said in the proposed rule published in the Federal Register that it anticipates the change will result in a higher initial monthly annuity payment on average given that inflation has averaged 1.95% annually over the last 20 years and also make for a more predictable pattern of income in retirement.

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