Cost-of-living-adjustment (COLA) rates for federal annuities in 2020 were announced earlier today.
Retirees under both the Civil Service Retirement System and the Federal Employee Retirement System will see their monthly pensions adjusted by 1.6 percent starting with January 2020 payments.
By law, COLAs are based on the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers, calculated by the Bureau of Labor Statistics. For a deeper dive into how the COLA is calculated, see the explanation below from the Office of Personnel Management.
For years, NTEU has worked to protect federal retiree COLAs from severe cuts and even elimination. NTEU also continues to fight recurring proposals aimed at replacing the formula used to determine the COLA with a “chained CPI.” Over a 10-year period, a chained CPI could reduce federal annuities by thousands of dollars.
The retiree COLA is unrelated to the pay raise for current federal employees. NTEU continues to support the average 3.1 percent increase —a 2.6 percent across-the-board raise with an average 0.5 percent increase in locality pay—approved by the House. In August the administration issued an alternative pay plan providing a 2.6 percent pay raise, but no increase in locality pay for federal employees in 2020. NTEU is urging the Senate to follow the House in advancing a 3.1 percent average pay raise—with locality increases—for the entire federal workforce.
How is the Cost-of-Living Adjustment (COLA) determined?*
The U.S. Department of Labor calculates the change in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third quarter average of the previous year to the third quarter average for the current year.
For Civil Service Retirement System (CSRS) or Organization and Disability Retirement System (ORDS) benefits, the increase percentage is applied to your monthly benefit amount before any deductions, and is rounded down to the next whole dollar.
For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.
To get the full COLA, a retiree or survivor annuitant must have been in receipt of payment for a full year. If not, the increase is prorated under both plans. Prorated accounts receive one-twelfth of the increase for each month they received benefits. Cost-of-Living Adjustments were first prorated in April 1982. Adjustments to benefits for children are never prorated.
Federal Employees Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements. FERS disability retirees get the adjustment, except when they are receiving a disability annuity based on 60 percent of their high-3 average salary. Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA calculation.
Note: A benefit will not be increased if it would cause the annuitant to receive payments in excess of any cap amount specified by law.
*OPM website: https://www.opm.gov/faqs/topic/retire/index.aspx?cid=422637f6-1d45-4863-9549-b2b605155b40