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2012 Federal Retiree COLA:
CSRS COLA 3.6% - FERS COLA 2.6%
October 19, 2011
A 2012 federal retiree COLA will be applied to CSRS and FERS
annuities. The CSRS COLA will be 3.6% and the FERS COLA will be 2.6%.
This increase would be one of the larger federal retiree COLAs in recent
years, and would follow two years of no COLA increases in 2010 and 2011.
Cost-of-living adjustments (COLAs) for the Civil Service Retirement System
(CSRS) and the Federal Employees Retirement System (FERS) are based on the rate
of inflation as measured by the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), which is published monthly by the Bureau of Labor
Statistics.
As applicable to CSRS and FERS, 5 U.S.C. 8331(15) provides that "'price
index' means the Consumer Price Index (all items - United States city average)
published monthly by the Bureau of Labor Statistics." However, the BLS no
longer publishes a CPI exactly as described in that definition. Accordingly, the
OPM uses the CPI for Urban Wage Earners and Clerical Workers (CPI-W), as
published monthly by the BLS, selected to be the index most similar to the
statutory requirement. The CPI-W is also used by the Social Security
Administration as their indexing base
COLAs for both CSRS and FERS are based on the percentage increase in the
CPI-W for the most recent third quarter (July-September) compared to the most
recent quarter upon which an increase was based. If consumer prices as measured
by the CPI-W do not increase from the third quarter of one year to the third
quarter of the next year, there is no COLA for annuities paid under CSRS or
FERS. For example, from the third quarter of 2008 to the third quarter of 2009,
the CPI-W fell by 2.1%. Therefore, there was no COLA under either CSRS or FERS
in December of 2009 (which would have been reflected in the January
checks). The third quarter of 2008 will be the base to which the third
quarter of 2010 will be compared.
Under both CSRS and FERS, the annual COLA increase, if any, is made for
annuities effective on December 1, appearing in the payment made the first
business day of January. Also, if an individual retires during the year
immediately preceding a COLA, the first COLA is prorated.
However, there are a couple of differences regarding COLAs under CSRS and
FERS.
CSRS annuitants receive a COLA that is equal to the percentage change in the
CPI-W. However, under FERS, the basic retirement annuity is fully indexed
if inflation is under 2% per year and partially indexed if inflation exceeds
2%:
- If the CPI-W increases by up to 2%, then the FERS annuity increases by the
same percentage.
- If the CPI-W increases by 2% to 3%, the FERS annuity increases by 2%.
- If the CPI-W increases by more than 3%, the FERS annuity increases by the
rise in the CPI-W minus one percentage point.
All CSRS retirees and survivors receive COLAs. However, under FERS, COLAs are
applied only to annuities of retirees who are age 62 or older, individuals who
retired under specified special retirement provisions (such as law enforcement
officers and fire fighters), individuals who retired by reason of disability,
and to survivor annuitants. Other FERS retirees receive no COLAs while they are
under age 62.
The federal retiree COLA adjustment of annuities is discussed in Chapter 2 of
the Office of Personnel Management's CSRS and FERS Handbook, found at http://www.opm.gov/retire/pubs/handbook/C002.pdf
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