The federal employee retirement system is Orwellian in its complexity. FedSmith publishes a number of articles on COLA payments throughout the year. Normally, these articles focus on projections for the COLA payment for the next year.
Variations Occurring in 2023 COLA Payments
The reality is that many employees will receive payments that are different from the published COLA amount released every October. For the benefit of FedSmith readers, here is a more detailed explanation of how this complex system works with some of the more common variations that exist in the COLA system. It explains why some federal retirees will receive more or less than others depending on their particular circumstances.
This article does not cover all possible permutations. It does cover the most common variations likely to impact the largest number of people. Please note that those readers with complex retirement situations in this complex system will need to check with their servicing or former servicing human resources office for more information.
2023 COLA Adjustments
Retired federal employees who receive benefits from the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS), with a few exceptions, have received a COLA increase this year.
The increase was effective December 1, 2022. The first payment was payable to retirees in their January 2023 annuity payment. The maximum increase for CSRS is 8.7%. The maximum increase for FERS is 7.7%.
Here is How the 2023 COLA Works for Recent Retired Federal Employees
The minimum 2023 COLA increase payable under either federal employee retirement system is $1.00. Even if the full COLA or a prorated COLA calculation results in the annuity rate not increasing, a minimum of $1.00 will still added to the monthly annuity rate.
Former federal employees who have been retired for at least one year will receive the full COLA or the maximum increase provided by law. The COLA increase is prorated according to the date the annuity started during an annuitant’s first year as a retired federal employee. The formula for proration applies to both CSRS and FERS retirement annuities.
About Those FERS COLAs—And Why Some Will Not Get the 2023 COLA
The latest FERS COLA was payable on annuities with starting dates no later than November 30, 2022.
If this applies to you, hopefully you were aware of it before submitting your retirement paperwork.
Some former federal employees under FERS will not get a FERS COLA. We hope this will not be a surprise for those who find themselves in this situation.
According to the Office of Personnel Management (OPM), FERS COLAs are not usually paid to annuitants who were less than 62 years old as of December 1, 2022. Here are the exceptions:
- Spouse, former spouse, or insurable interest survivor annuitants;
- Certain disability annuitants;
- Those who retired under the special provisions for law enforcement officers, firefighters, and Capitol Police;
- Those who retired under the special provisions for air traffic controllers;
- Those who retired under the special provision for military reserve technicians (age 50, 25 years of service) because they ceased to quality for military membership on account of disability; and
- Joint Payroll Office FERS Special annuitants
Under the FERS system, COLAS do not increase the Social Security offset that is given to a FERS disability annuity.
If you are a disability annuitant receiving the 60% rate during your first year on the disability roll, you will not receive a COLA increase. But, this will not be a surprise to most readers, it is not that simple. A COLA is payable during the first year if the annuity rate payable is the retiree’s earned benefit or if the annuity payment is redetermined because the retiree has turned 62.
About The 2023 COLA Now Being Paid to CSRS Retirees
Here is the good news for those who are retired under the older CSRS retirement plan. COLAs for those under CSRS apply to all annuities, regardless of how old or how young the annuitant may be.
If you are retired under CSRS, and you have been retired for at least one year, you will receive the full COLA or maximum increase. However, if you are a newly retired federal CSRS employee (yes, there are still some now retiring under the CSRS system), you will receive a prorated COLA during their first year of retirement.
The December 1st 2022 CSRS COLA was payable on annuities with a start date no later than November 30, 2022.
How a Prorated 2023 COLA Works
Prorated COLAS are payable on annuities starting from December 1, 2021, through November 30, 2022. The proration is based on the number of months between the annuity start date and the effective date of the COLA.
A retired annuitant receives one-twelfth (1/12) of the full COLA rate for each month that person receives an annuity. The following chart shows the percentage of the COLA a retiree will receive in 2023 depending on when the annuity started and the effective date of the COLA.
Chart of Prorated 2023 COLA Percentages Effective December 21, 2022
|When Did Monthly Annuity Begin?|
|December 2021 or earlier||8.7%||7.7%|
If you are a survivor of a deceased annuitants (other than a child of the deceased), you will receive a prorated COLA based on the date the annuity was first payable to the deceased annuitant.
Survivors of deceased employees receive a prorated COLA based on the starting date of the survivor annuity. Children of deceased annuitants always receive the full COLA rate.
FERS Annuitants with a CSRS Component
For some federal employees, the COLA system becomes even more complex. Here is how OPM describes what happens with a federal retiree who has both a FERS and CSRS background:
FERS annuitants with a CSRS component will have their CSRS component computed under CSRS provisions. The CSRS portion is subject to CSRS COLA provisions which allow for a COLA increase prior to an annuitant attaining age 62. Thus, the CSRS component of an annuity may increase without a corresponding increase to the FERS portion of the benefit.OPM Benefits Administration Letter 2022
Frequently Asked Questions
Is the COLA reduction applicable to FERS employees also applicable to their Social Security payments?
No, the 1% COLA reduction mentioned in this article and reflected in the chart above that applies to federal retirees under FERS does not apply to Social Security payments for FERS retirees.
Do CSRS retirees also receive Social Security payments?
Federal employees under CSRS generally do not receive Social Security benefits for the time they worked as federal employees. Under CSRS, federal employees paid into the federal retirement system but were not covered by Social Security.
Why are FERS and CSRS retirement benefits different?
The FERS system was based on different assumptions and a different model. FERS employees receive Social Security and the full Social Security COLA every year. So, while they do not receive the full COLA for their pension or annuity, they do receive the full COLA for Social Security.
If a federal employee leaves federal service before retiring, the Social Security benefit and their TSP investments stay with that person.
The extra COLA amount for CSRS employees is the result of Congress having decided the benefit of the TSP investments, including a matching amount provided by the federal government for an employee who invests in the TSP, and the additional income provided during retirement by the Social Security system justified a lower COLA than the one provided for CSRS employees.