Watering Down Your COLA

If inflation continues at its current pace, or speeds up, the 2009 cost-of-living adjustment for retirees will exceed this year’s COLA. And it could go even higher than the percentage pay raise that will go to still-working feds.

With seven months left to go in the COLA countdown, retirees are already looking at an inflation adjustment of 1.5 percent. If oil and food prices continue to increase, the value of the COLA will rise too.

This year most federal retirees (those retired under the old CSRS plan) got a 2.3 percent raise. Those who retired under the newer FERS program got a 2 percent adjustment if they were 62 or older. Those retired under both plans got the full raise on the CSRS portion of their benefit and the so-called diet COLA on the FERS share of their check.

Federal workers got an overall increase of 2.5 percent in January. As a percentage, that’s only slightly higher than the COLA for retirees. But after locality pay was factored in, white collar workers in most areas got more. The increase was 4.49 percent in Washington-Baltimore, 4.23 percent in San Francisco-Oakland-San Jose, 3.97 percent in metro New York and 3.8 percent in Boston.

Most people realize that the federal pay-setting system isn’t working as planned. It was supposed to be automatic, with national and locality adjustment designed to close the government’s self-styled “pay gap” with industry. But both Presidents Bill Clinton and George W. Bush say the concept is flawed because it fails to compare valuable civil service perks (like retirement, number of holidays, sick leave, etc.) with industry. As a result, the pay raise issue is a cat fight each year between the president de jour and Congress. Congress has won all but one tussle. That’s given feds bigger raises than proposed by the White House, but not as big as the 1990 federal pay law envisioned.

While workers more or less understand the pay raise procedures, few retirees understand, or believe, the way their COLAs are calculated. Here’s the official word the National Active and Retired Federal Employees Association (NARFE) sent out to its members:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.5 percent in January 2008 according to the Bureau of Labor and Statistics (www.bls.gov/cpi or 202/691-6994). Released on February 20, the CPI-W for January is 206.7. For purposes of calculating the next COLA (cost-of-living adjustment) the index is currently 1.5 percent above the 2007 third quarter average base index of 203.6.

Still confused? Convinced that somebody is diluting your COLA? Check this out.

Nearly Useless Factoid

According to their website, the 1792 law that established the Mint made coin defacement, counterfeiting, and embezzlement by Mint employees punishable by death.

To reach me: mcausey@federalnewsradio.com

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