This is the second of two columns discussing the 2024 cost-of-living adjustment (COLA).
The first column discussed the 2024 COLA for CSRS and CSRS-Offset annuitants and survivor annuitants. This column discusses the 2024 COLA for FERS and “Trans” FERS annuitants and survivor annuitants. “Trans” FERS annuitants are receiving both a CSRS annuity and a FERS annuity based on their years of service (at least 5 years) under both the CSRS and the FERS retirement programs.
FERS COLAs do not apply to FERS annuitants who are under age 62, with the following exceptions: (1) Disability FERS annuitants, except FERS disability annuitants who are receiving 60 percent of their high-three average salary during their first year of FERS disability retirement; (2) Special provision employees – federal law enforcement officials, firefighters, air traffic controllers and custom border and protection officers; and (3) Spouses, former spouses and insurable survivor annuitants.
Amount of the FERS COLA
In order to explain the FERS COLA, the same information used to explain the CSRS COLA is reproduced here:
• Base quarter. The calendar quarter ending September 30 (July 1 – September 30)
• Consumer Price Index for Urban Wage Earners (CPI-U). The index published monthly by the Department of Labor reflects changes in consumer prices for urban wage earners.
• Base Quarter Price Index. The arithmetical mean of the CPI-U for the three months comprising a base quarter (July, August and September).
• Cost-of-Living Adjustment (COLA). An increase to a CSRS annuity based on the increase in the CPI-U between two consecutive base quarters.
• Effective date. COLAs are effective on December 1 of the year preceding the year when an annuity becomes effective. FERS annuity Increases resulting from a COLA are first implemented in annuity checks payable in January following the effective date.
• Annuity commencing date. The date a CSRS or a FERS annuity first begins to accrue.
As under CSRS, the amount of a COLA under FERS is determined by the percent charge in the base quarter price index from the previous year to the year in which the COLA is to become effective adjusted to the nearest 1/10 of one percent.
As a rule, if the CPI-U is over 3 percent, then the FERS COLA is 1 percent less than the increase in the CPI-U as determined under the law. If the CPI-U increase is between 2 and 3 percent, then the FERS COLA is 2 percent. If the CPI-U increase is 2 percent or less, then the FERS COLA equals the CPI-U.
The following table summarizes the amount of the FERS COLA based on the CPI-U:
The following illustrates the calculation of the CPI-U and the FERS COLA for the year 2024:
(9.335/291.901) times 100% equals a CPU-U for the year 2024 of 3.20 %
FERS COLA rate for the year equals: 3.2% minus 1.0% equals 2.2%, effective December 1,2023.
How the FERS COLA Increases the FERS Annuity
A FERS annuitant’s new calendar year FERS monthly gross annuity equals the previous calendar year’s FERS monthly gross annuity multiplied by the COLA factor (1+ the COLA rate). The new FERS monthly gross annuity is then adjusted by the following items, if applicable: (1) Reduction for survivor benefits; and (2) Reduction for early retirement under the “MRA+10” and “MRA+20” early retirement option.
The following two examples illustrate:
Example 1. Jack, age 64, retired from federal service under FERS on December 31, 2022. When Jack retired from federal service, he elected to give a full (50 percent) survivor benefit to his wife Stefanie. Starting with his first FERS annuity check dated February 1, 2023, Jack’s FERS monthly annuity was as follows:
Jack’s FERS annuity is eligible for a 2.2 percent FERS COLA, starting with his January 1,2024 monthly annuity check. His FERS 2024 monthly annuity check will be equal to:
2023 gross annuity ($48,000) times the COLA factor equals: $48,000 x 1.022 = $49,056
Less: Cost to give 50% FERS survivor annuity benefit to Stefanie: ($4,800)
Net 2024 FERS gross annuity: $44,256
or $3,688 monthly
Example 2. Francine, age 64, retired from federal service at age 58 with 13 years of FERS service under the MRA+10 immediate retirement option. Since Francine retired four years before her 62nd birthday, her FERS annuity is permanently reduced by 5 percent per year under age 62, or a total of four years times five percent/year, or 20 percent. When she first retired at age 58, Francine’s starting FERS gross annuity before any reductions was $13,000 – 13 years of FERS service with a high-three average salary of $100,000 (13 times one percent time $100,000 equals $13,000).
Francine’s starting gross annuity was reduced by the following: (1) 20 percent early retirement penalty; and (2) 10 percent reduction to give a full survivor annuity to Francine’s husband Hal. The following shows Francine’s net FERS annuity after the two reductions.
Note that Francine receives the same FERS annuity with no COLAs until the year after she becomes age 62. She will become age 62 during 2023 and is eligible for her first FERS annuity COLA on December 1, 2023, payable starting with the FERS annuity check dated January 1, 2024. Francine will receive the following FERS annuity during 2024:
In future years, Francine will be eligible for a FERS COLA computed in the same manner.
Proration of First FERS COLA
For FERS annuitants who are not eligible to receive a COLA during their first year (or more) on the annuity roll, the initial COLA they receive after they become eligible is the full COLA without proration. The annuitants who fall in this category are:
• Annuitants under age 62 whose annuity commences at least one year prior to reaching age 62.
• Disability annuitants whose FERS annuity benefits are based on 60 percent of high-three average pay. This happens during the first year of a FERS annuitant’s disability retirement. After the first year of disability retirement, and until the FERS disability annuitant becomes age 62, the FERS disability annuitant receives 40 percent of their high-three average pay.
The following two examples illustrate:
Example 3. William retired under FERS at age 60 on December 31, 2021. He becomes age 62 in July 2023. In January 2024 William is eligible to receive an un-prorated COLA of 2.2 percent.
Example 4. Sheila is a FERS disability annuitant. From July 1,2022 to June 30, 2023, Sheila received 60 percent of her high-three average salary. On July 1, 2023, Sheila began receiving 40 percent of her high-three average salary. In January 2024, Sheila will receive an un-prorated FERS COLA of 2.2 percent.
Trans “FERS” Employees with a CSRS Component
There are some FERS annuitants (“Trans” FERS) who transferred to the FERS retirement after working at least 5 years under the CSRS retirement. “Trans” FERS are entitled to a CSRS annuity in addition to a FERS annuity. The CSRS annuity portion of their retirement is subject to CSRS COLA rules rather than FERS COLA rules.
CSRS COLA rules do not require the annuitant to be age 62. Therefore, a “Trans” FERS annuitant who is younger than age 62 will have the CSRS annuity portion of their retirement increase through the CSRS COLA even though there is no FERS annuity COLA increase.
FERS Survivor Annuities – Spouses, Former Spouses, Insurable Interest
1. An annuity payable to a FERS retiree’s survivor annuitant normally commences on the day after death.
2. FERS survivor annuities are increased by COLAs after they commence even though the survivor annuitant is under age 62. The proration rules apply to the first FERS COLA paid to the first COLA paid to the survivor of a FERS annuitant in which the annuitant dies before having been retired for a year, or to the survivor annuity in which a FERS employee died in federal service with at least 10 years of service at the time of death. The following examples illustrate:
Example 5. Felix is age 59 when he retires under FERS in June 2019. He died at age 61 in June 2021. Felix had not received a COLA because he had not reached age 62. In December 2021, Felix’s wife Susan received a full FERS COLA of 1.1 percent because Felix’s FERS annuity had begun more than a year earlier.
Example 6. Jason retired at age 59 in June 2019. Jason died in November 2019 and had not received a COLA. In December 2019, Jason’s wife receives a prorated COLA on her FERS survivor annuity, based on Jason’s FERS annuity that started in June 2019. Half of the regular FERS COLA would be payable because 6 months (June – November) have passed since Jason started his FERS annuity.
When a FERS annuitant dies, the potential survivor annuity benefit calculated at the FERS employee’s retirement is increased by the total percent that the annuitant’s FERS annuity had increased by COLAs since the time the FERS annuitant’s annuity had received COLAs. If the FERS annuitant had not received any COLAs because he or she was younger than age 62, then there is no increase in the survivor annuity benefit.
On the effective date of the next COLA, the survivor annuity increase is determined based on the length of time that has passed since the FERS annuity was first payable to the deceased annuitant. If at least one year has passed since the deceased annuitant’s annuity commenced, the survivor ‘s annuity is increased by the full COLA. IF less than one year has passed, the COLA is prorated based on the annuitant’s FERS annuity starting date.
FERS Disability Annuitants and COLAs
FERS employees who apply for disability retirement are also required to apply for Social Security disability benefits. The FERS disability retirement benefit is recalculated after the first 12 months of retirement and then recalculated at age 62. The following table summarizes the FERS disability retirement calculation:
Note the following with respect to the FERS disability benefit:
1. COLAs are not payable on the FERS disability annuity during the annuitant’s first year on the annuity rate if the annuity rate is based on 60 percent of his or her high-three average salary.
2. The Social Security disability offset amount during the first year (100 percent of the annuitant’s Social Security disability benefit) is not increased by COLA during the first year of disability retirement.
3. After the first year of FERS disability retirement, both the FERS disability annuity and the Social Security disability benefit offset amount are increased under the FERS COLA rules, and
4. If a FERS disability annuitant is removed from the disability retirement roll as a result of recovering from disability or restoration to earning capacity, then he or she is restored at the 60 percent rate for a year and is not eligible for COLAs for that year.
Reemployed FERS Annuitants and COLAs
In general, a reemployed FERS annuitant’s salary is offset by the amount of the FERS annuity. When a COLA is applied to the FERS annuity, the employing office must make an additional salary offset. The agency determines the new monthly FERS annuity to be used for reducing the reemployed annuitant’s salary by adding the COLA to the previous FERS monthly annuity amount. The additional offset in pay is effective from December 1st of that year.