2012 Federal Retiree COLA:
CSRS COLA 3.6% - FERS COLA 2.6%
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 .