The Bureau of Labor Statistics (BLS) — the federal agency that produces the indexes determining the cost-of-living-adjustments (COLAs) on federal retirement programs — hasn’t evaluated whether its data accurately reflect what these groups pay, where they shop, and what they purchase, the Government Accountability Office (GAO) wrote in a report last month.
“We recommended that BLS evaluate the data they use, as well as explore using other data, to improve its indexes,” the GAO wrote.
Federal retirement programs include a cost-of-living adjustments based on a consumer price index that measures inflation for a subpopulation of workers. Currently the BLS uses the Consumer Price Index for Workers, or CPI-W. The programs affected by COLAs include Social Security as well as the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS).
The 2020 COLA was 1.6 percent for CSRS and FERS annuities as well as Social Security retirement benefits. Currently, some are predicting the COLA for 2021 may be zero. The official figure for the 2021 COLA will be announced in mid-October.
“As the life expectancy of Americans continues to increase, more Americans will be subject to these adjustments, so it is critical for them to be accurate,” the GAO said.
GAO was asked to review U.S. and international efforts to measure the cost of living for older populations, specifically:
(1) key issues that BLS faces in measuring the cost of living for older Americans; and
(2) the experiences of other countries that developed alternate methods of adjusting retirement benefits. GAO reviewed pertinent literature; assessed BLS efforts to measure inflation; conducted case studies in three countries—Australia, New Zealand, and the U.K.—with a variety of CPIs, which GAO selected based on expert referral and document review; and interviewed agency officials and experts.
Below are some highlights of the GAO’s report.
What GAO Found
The U.S. Bureau of Labor Statistics (BLS) faces accuracy, timeliness, and relevancy challenges developing consumer price indexes (CPI) for subpopulations of blue-collar workers and older Americans. For example, the CPI for these workers is used to adjust federal retirement benefits for inflation, including Social Security. BLS has not evaluated the extent to which its existing data are adequate to produce CPIs that reflect what these subpopulations pay, where they shop, and what they purchase. Officials cite budgetary reasons for not having done this, but there may be cost-efficient methods for evaluating the adequacy of these data. Without an evaluation, federal retirement benefits could be subject to adjustment based on potentially inaccurate information. Additionally, BLS has made limited use of certain data already collected by the federal government—such as National Accounts data on U.S. production and consumption—that could be used to increase the accuracy, timeliness, and relevancy of CPI calculations that reflect the mix of goods and services consumers purchase. Without adequately exploring the potential of using these data, BLS may be missing an opportunity to improve its CPIs.
Reports about the retirement systems in the 36 Organisation for Economic Co-operation and Development countries indicate that most use their primary measures of inflation to adjust government retirement benefits. In addition, all three of GAO’s case study countries (Australia, New Zealand, and the United Kingdom, or U.K.) have a variety of CPIs, including for subpopulations, and they filled information gaps in their CPIs with National Accounts and other data. For example, Australia and the U.K. use National Accounts data annually to update their calculations of the mix of goods and services consumers buy, thereby making the CPIs more relevant and accurate. All three countries also collaborated with stakeholders—such as other agencies—to implement changes, for example by gathering input on the design of subpopulation CPIs.
What GAO Recommends
GAO recommends that BLS explore cost-efficient ways to evaluate the data currently used to produce subpopulation indexes, and explore the use of National Accounts data to produce more accurate, timely, and relevant CPIs. BLS agreed with the first recommendation but disagreed with the other. GAO continues to believe both recommendations are warranted, as discussed in the report.
To read the full GAO report, go here.