What the 2027 Pay Freeze and FERS COLA Do to Your Pension When Retiring

Two developments this fall affect Federal Employees Retirement System (FERS) employees planning to retire in 2027 or over the next few years. The president’s alternative pay plan holds General Schedule (GS) base and locality pay flat for January 2027, and the 2027 cost-of-living adjustment (COLA) has been announced at 3.6% for Civil Service Retirement System (CSRS) annuities and 2.6% for eligible FERS annuities, reflecting the different formulas used by the two retirement systems.

The first affects how large a new pension starts out. The second affects how that pension changes after retirement. The pay freeze applies to the 2027 pay adjustment, while the FERS COLA restrictions have been in place for decades. Although they are not legally connected, both can affect retirement income for years afterward.

Most coverage treats them separately. This article runs both through a single example, a FERS employee retiring at the minimum retirement age (MRA), so the financial effects show up in dollars.

The Short Version

• A frozen 2027 pay year lowers the high-3 average salary compared with a scenario in which employees receive a raise. In the example below, the cost is about $20 a month in starting pension for a December 2027 retirement and about $65 a month for December 2029, assuming subsequent raises do not make up the difference.
• A FERS retiree who leaves at the MRA generally receives no COLA until age 62. In the example, the wait and the reduced FERS COLA formula leave the pension approximately $49,600 behind a hypothetical pension that rises fully with inflation over the first ten years, assuming annual COLA-measured inflation remains at 3.6%.
• The Office of Personnel Management (OPM) says applicable special salary rates count as basic pay for retirement, but it has not yet announced which law enforcement positions will receive the 3.8% increase in 2027.
• The freeze remains a plan until the president signs the pay order, normally in December, so the final numbers could still change.

What the Pay Freeze Changes, and What It Leaves Alone

The letter transmitted August 26 sets 2027 base pay and locality pay at 2026 rates for civilian employees covered by the GS and certain other pay systems. Separately, it directs OPM to raise 2027 compensation for law enforcement personnel by 3.8%. The letter states that without the alternative plan, locality pay would have risen by an average of 20.6% and base pay would have received an additional 3.1% across-the-board increase under current law.

The freeze applies to the pay tables. It does not stop a within-grade increase, a promotion, or a move to a higher-paying locality area, and each of those can still raise basic pay. Employees already at the top step of their grade who receive no promotion or locality adjustment have fewer ways to offset the freeze, which is why the example below uses a top-step employee. The 2027 GS pay scale shows where each grade and step lands.

The plan is not final. New rates take effect through an executive order, typically signed in December, and Congress can enact a different adjustment. More than 100 lawmakers have urged congressional leaders to override the freeze, though bills for a raise have been introduced in past years without passing. Anyone timing a retirement date around the 2027 pay table should check the final order when it is issued. Background is in the 2027 federal pay freeze article.

Why a Frozen Year Reaches the Pension

The FERS basic annuity equals the high-3 average salary, times years of service, times a multiplier. The multiplier is 1% for most retirees and 1.1% at age 62 or later with at least 20 years of service. The high-3 average salary is the highest average basic pay over any 36 consecutive months, and OPM’s handbook explains how it is computed.

A freeze leaves basic pay lower than it would have been with a raise, and that lower level can carry into later years unless a future increase makes up the difference. For a December 2027 retirement, the missed increase affects approximately one-third of the high-3 calculation. By December 2028, the lower salary level affects roughly two-thirds of the calculation, including the assumed 2028 raise applied to that lower starting point. By December 2029, all three years in the high-3 reflect the lower salary path.

That is why the cost of the freeze can grow with each additional year worked, even though the freeze itself lasts only one year. The effect is not permanent by necessity: a later pay adjustment large enough to close the gap could reduce or eliminate it.

Do the Law Enforcement Special Rates Count as Basic Pay for Retirement?

Yes. OPM’s 2027 special rates FAQ states that special rates are basic pay for most purposes, including retirement. An applicable special-rate increase therefore flows into the high-3 and into retirement contributions in the same way as other qualifying basic pay.

Several details are still open:

• Coverage: OPM will consult agencies to decide which law enforcement positions are covered, and says the 2027 approach is broader than the 2026 one. Final coverage comes with the special rate tables, expected by the end of the year, with a tentative effective date of January 10, 2027.
• Amount: OPM intends a 3.8% total increase for employees already covered by the 2026 tables.
• Cap: Special rates cannot exceed Level IV of the Executive Schedule, which OPM lists as $197,200. Employees at the applicable cap receive no increase, and those near it may receive less than 3.8%.
• Timing of a move: Because the high-3 uses the highest 36 consecutive months, leaving a special-rate position for a lower-paying one before retiring can change which months count.

There is an important distinction between special salary rates and special retirement eligibility. Receiving a law enforcement special salary rate does not automatically qualify an employee for the special FERS retirement provisions. Special retirement eligibility depends on the position and applicable retirement coverage, not simply whether the employee receives a higher pay rate.

The 2027 COLA: Who Gets It and When

The Social Security Administration (SSA) announced a 3.6% COLA for 2027, effective December 1, 2026 and first visible in January 2027 payments. CSRS annuitants receive the full amount. Eligible FERS annuitants receive less under a three-tier formula based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W):

The formula is in Chapter 2 of OPM’s CSRS and FERS Handbook. Eligibility is the larger issue for people planning to retire early:

• FERS COLAs generally do not apply to annuitants who are under age 62 on December 1 of the COLA year.
• Exceptions include spouse, former spouse and insurable interest survivor annuitants, certain disability annuitants, retirees under the special provisions for law enforcement officers, firefighters, Capitol Police and air traffic controllers, and certain military reserve technicians.
• A first COLA is generally prorated at one-twelfth for each month on the annuity roll before December 1, subject to applicable exceptions.
• A FERS retiree whose annuity began at least a year before age 62 generally receives the first COLA after turning 62 without proration, according to the handbook.
• The FERS annuity supplement does not receive COLAs.

The 2027 COLA page has the announcement, and the COLA history shows how often the FERS reduction has applied. The Equal COLA Act would remove the difference between the FERS and CSRS formulas, but the existing reduction still applies to 2027.

The Worked Example: Retiring at the Minimum Retirement Age

The figures below describe a hypothetical employee and are meant to show the direction and size of each effect, not to predict any one person’s result. The assumptions are:

• Born in 1970 with a birthday on or before December 1, so the MRA is 57 and the retiree has reached age 62 by December 1, 2032, per OPM’s FERS eligibility chart.
• Retires on December 31, 2027 at age 57 with 30 years of service, which qualifies for an immediate, unreduced annuity and, assuming the applicable requirements are met, the FERS Special Retirement Supplement (SRS). The multiplier is 1% because the retiree is under 62. The supplement is left out of the pension calculations.
• Top-step GS employee earning $120,000 in base plus locality pay in 2026 and approximately $118,812 in 2025, reflecting the assumed 1% January 2026 raise.
• For comparison, a hypothetical 2% raise in January 2027 instead of the freeze, and 2% raises in 2028 and 2029 in both scenarios. The 2% figure is an illustrative assumption, not a forecast.
• Calendar-year pay figures are averaged for simplicity. OPM weights each pay rate by how long it was in effect.

The announced 2027 COLA does not apply directly to this employee’s new annuity, which begins in 2028. Instead, the second part of the example uses the same 3.6% inflation rate as a hypothetical assumption for future years to show how the FERS COLA rules could affect purchasing power after retirement.

Step 1: The Frozen High-3

The freeze costs this retiree approximately $240 a year in starting pension for a December 2027 retirement, and the difference roughly triples by December 2029 as more of the high-3 reflects the lower salary path.

Waiting still adds more to the annual pension than the freeze removes: the pension rises from $35,881 to $37,448 between the first two retirement dates, an increase of $1,567 a year. That comparison leaves out a year of pension and supplement payments given up by working longer, as well as additional salary and savings earned during that year. It is one input into a retirement decision, not a recommendation to delay retirement.

Step 2: The Delayed, Reduced COLA

The same retiree starts with a pension of $35,881 a year, or about $2,990 a month, beginning January 1, 2028. Under the general FERS rules, no COLA is paid before age 62. This retiree has reached age 62 by December 1, 2032, so the first regular COLA becomes effective December 1, 2032 and is reflected in the January 2033 payment, without proration.

To stress-test the result, the table assumes CPI-W rises 3.6% annually throughout the illustration, producing a 2.6% FERS COLA in years when the retiree is eligible. This is a hypothetical inflation scenario, not a prediction.

The third column shows what the pension would be if it simply rose with prices, which the FERS rules do not provide to an ordinary retiree under age 62. The gap measures how much the actual FERS COLA rules fall short of full inflation protection, not an error in the pension or a benefit OPM has withheld.

Over the ten years from 2028 through 2037, the cumulative difference is approximately $49,600. That gap reflects two features of FERS: the absence of regular COLAs before age 62 and the smaller adjustments received afterward when inflation exceeds 2%. The result illustrates how those rules can compound over time, rather than representing money that OPM has withheld from the retiree.

By 2037, the pension of $40,795 buys approximately 17% less than the original $35,881 did in 2028. If inflation instead runs 2.5% a year, which makes the FERS COLA 2.0%, the ten-year shortfall would be substantially smaller, approximately $32,100 under the same illustrative approach.

At the starting pension rate, the freeze in Step 1 represents $240 a year, or $2,400 over ten years before accounting for subsequent COLAs. The actual cumulative difference between pensions with and without the freeze would depend on the COLAs received during retirement.

What the Example Shows

The freeze and the COLA rules affect different parts of the retirement decision. The freeze reduces the starting pension compared with a scenario in which a raise occurs, and that difference can grow as the lower salary path carries into later years. Congress or later pay increases could reduce or eliminate the gap.

The COLA rules are different. They determine how an annuity changes after retirement, generally prevent regular adjustments before age 62, and provide smaller increases than CSRS when inflation exceeds 2%. Their effect depends on the retiree’s age and future inflation.

For someone retiring at the MRA, the COLA effect is much larger than the pay freeze effect in this example. It is also something the employee can prepare for by estimating expenses during the years before 62 and considering how the supplement, savings withdrawals and other retirement income will support those expenses.

If a Special Retirement Provision Applies

Law enforcement officers, firefighters, Capitol Police and air traffic controllers who retire under the applicable special FERS provisions receive COLAs without the ordinary age-62 restriction. The age-62 wait in Step 2 therefore does not apply to them. Their first COLA is generally prorated based on the applicable months on the annuity roll, with subsequent full-year adjustments calculated under the normal FERS COLA formula.

The pay freeze and any special-rate increase can still affect their high-3, and qualifying special rates count as basic pay for retirement purposes. However, receiving a law enforcement special salary rate and qualifying for special FERS retirement coverage are separate matters. Employees should confirm both their retirement coverage and the final 2027 special-rate tables before using those figures in a retirement estimate.

Questions to Settle Before Choosing a Retirement Date

1. How much of the 36-month high-3 window falls in or after the frozen year? The timing determines how much of the missed increase affects the pension calculation.
2. Is a step increase or promotion coming inside the window? Either can offset part of the freeze, and later general pay increases could also change the comparison.
3. Will retirement start before age 62, and does a special retirement provision apply? If the ordinary FERS COLA rules apply, plan for a pension that generally receives no regular inflation adjustments until the first applicable COLA after age 62.
4. How will the years before 62 be funded? The FERS supplement does not receive COLAs and generally ends at 62, so Thrift Savings Plan (TSP) withdrawals and other savings may need to carry part of the load.
5. Has the December pay order been signed? Confirm the final 2027 pay tables before relying on a particular salary assumption in a retirement estimate.

Run Your Own Numbers

The example uses a hypothetical employee, so the useful next step is repeating the calculation with actual salary and service figures. The High-3 Calculator can help estimate the highest consecutive 36-month average using an employee’s pay history and the applicable salary assumptions. The COLA Impact Calculator can help illustrate how different COLA assumptions affect a retirement annuity over time.

All figures here are illustrations, not an official OPM computation. Agencies and OPM calculate actual annuities from official pay and service records, and individual results will depend on retirement dates, salary history, eligibility and future adjustments.

Official Sources

• House Document 119-189, Alternative Plan for Pay Adjustments, August 26, 2026
• Social Security Administration: 2027 Cost-of-Living Adjustment Announcement
• OPM: 2027 Special Rates for Certain Law Enforcement Personnel
• OPM CSRS and FERS Handbook, Chapter 2: Cost-of-Living Adjustments
• OPM CSRS and FERS Handbook, Chapter 50: Computation
• OPM: FERS Eligibility and Minimum Retirement Age