Retiree COLAs Remain an Issue
Current federal retiree annual cost-of-living adjustments (COLAs) to annuities are based on the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers. Military retirees and Social Security recipients also see their monthly payments adjusted annually by this same index.
Measured by the Bureau of Labor Statistics, the CPI-W is designed to track the prices paid by consumers through detailed surveys for all goods and services, including shelter, food, utilities, transportation, medical care, apparel, vehicles and user fees. All consumer items and services have been broken down into more than 200 categories, and are grouped into eight major areas. In January 2015, federal annuities were adjusted by 1.7 percent, as were the Social Security checks for more than 58 million seniors.
Over the years, there have been a variety of calls to change the way COLAs are calculated for retirement benefits or to eliminate them entirely. Some officials have advocated using an alternate index, the CPI-U, or Chained Consumer Price Index for all Urban Consumers. The so-called “chained CPI” assumes that when the price of one item goes up, consumers then switch to a lower cost item to replace it. Data capturing this consumer phenomenon tends to result in a lower measure of inflation and therefore, a lower COLA for retirees. While this lower amount may not seem like a large discrepancy, over time, it could significantly impact retirees by failing to keep their pensions ahead of general increases in inflation.
The 2010 National Commission on Fiscal Responsibility and Reform, or Simpson-Bowles report, proposed adopting the chained CPI as a key way to limit the growth in overall federal spending. While tying the Social Security program and federal and military retirees to the chained CPI would certainly save money, it does so entirely at the expense of retirees. The very point of COLAs is to protect pensions against inflation, and the chained CPI would not do that.
While the president’s proposed budget for fiscal year 2016 and the House and Senate-passed budgets do not include specific language to migrate to the chained CPI, the president’s past support for this item, coupled with Congress’ desire to shore up the Social Security Trust Funds, will continue to ensure that COLAs remain a target. NTEU constantly fights to retain COLAs for federal retirees. Join the fight at NTEU’s Legislative Action Center.
Inside the Issues
Read these stories from the members-only NTEU Bulletin for retirement advice, information and news:
• At 65, Medicare Questions Arise
• Technology to the Rescue
• Retirement Planning—Steps Toward a Smooth Send Off
• Phased Retirement: Is This An Option For You?
• Retirement Processing Slows
• How Much Could You Lose? Chained CPI Proposal
• A To-Do List for Recent Federal Retirees (Continued)
• Your Future: A To-Do List for Recent Federal Retirees
• COLA Set For Retirees
• Are You Considering Retirement? Already Retired?
• OPM's Phased Retirement Q&A
• Federal Employees Group Life Insurance (FEGLI) information
Insurance and Retirement