Chained CPI could cost retirees thousands over time, NARFE says

A proposed change to how federal retirees' cost-of-living adjustments are calculated could have a huge, negative impact, according to David Snell of the Nationa...

Many federal employees and retirees have expressed concern over the impact of the Affordable Care Act and reforms to the Federal Employee Health Benefits program. However, another plan under consideration on Capitol Hill may have a greater impact on feds’ long-term financial well-being — the chained Consumer Price Index.

“This is going to affect current employees when they retire,” said David Snell, director of retirement services for the National Active and Retired Federal Employees Association. “It’s going to affect current retirees. It’s going to affect survivors of those retirees, because those survivors will also see a loss in the amount of inflationary protection that will be offered if the chained CPI is enacted.”

Snell told Your Turn with Mike Causey that NARFE has made it a priority to get the word out about what enacting the chained CPI would mean for feds.

The CPI is used to calculate cost-of-living adjustments (COLAs) not just for federal and military retirees, but for people receiving veterans and Social Security benefits as well.

The chained CPI would trim future increases by approximately 0.3 percent annually.

That doesn’t sound like a whole lot, but Snell said it could cost retirees plenty in the long run.

“If you understand the fact that people are going to be retired for almost as long as they have worked, and that over a period of 20-25 years, that 0.3 percent is going to equate into tens of thousands of dollars for the retiree, then you understand the importance that the chained CPI not be enacted into law,” he said.

Earlier this year, NARFE launched a “calculator” designed to show retirees and policymakers how much retiree benefits would be reduced over a range of years.

NARFE is urging not just its members but also all retirees to contact their congressmen during the week of Sept. 16 to express their opposition to the chained CPI.

Small cut has big impact on feds’ retirement benefits

The Obama administration has come out in support of the chained CPI, which originated as a recommendation of the Simpson-Bowles Commission.

Because the cut appears to be small, it will be easy for people to miss its true impact when it goes into effect, according to Snell.

“For federal retirees who elect survivor benefits, those survivor benefits are also subject to these cost-of-living increases, so if something happens to them, their survivor is going to see less of a yearly increase than they would normally under the current CPI,” Snell said. “It has a lot of effect over a period of years, and it’s no way to secure your future in retirement.”

The president’s budget proposal contains another item of interest to feds — the self-plus-one employee health option.

Currently, a federal employee can choose to receive single or family health care coverage, with the family being as small as just two people. Self-plus-one would make it so a family of two would pay a lower premium than a family of three or more.

NARFE, as a member of the FEHB Reform Advisory Committee, has met with the Office of Personnel Management about the proposed legislation.

“One of the areas that they want the law to be changed in is to allow a self-plus-one option,” Snell said. “The program wants to foster more competition from other health insurance carriers and also to reduce program costs.”

While self-plus-one will likely save the program money, Snell said, it’s unclear whether it would save the individual money.

“That’s the important question here,” he said. “NARFE would like to see more data to make sure this self-plus-one option is not going to result in an adverse risk selection causing some employees’ premiums to increase while others decrease.”

Phased retirement helps employees take that next step

OPM has also proposed the Phased Retirement Act, which would allow federal employees to transition out of work and into retirement.

“The thought behind it is that with a lot of institutional knowledge going out the door from the federal government, that if a phased type of retirement could be available, these folks who are in the middle of working on a project or whose institutional knowledge is such that it would take time to get a new employee trained on it, they could continue to work and, at the same time, draw part of their pension,” Snell said.

The regulations OPM set up allow for retirees choosing the phased retirement option to work up to 50 percent of their hours, while drawing on 50 percent of their pension. With that formula, the employee would only be able to work 20 hours within a 40 hour week.

“A big portion of that must be used in mentoring another employee, someone presumably who will be taking that senior employee’s place when they do finally decide to retire,” Snell said.

OPM put the phased retirement regulations out for comment in July, Snell said, and it probably won’t release the final version of the regulations until the end of the year.

“In the meantime, agencies are kind of waiting,” he said. “There is no phased retirement, so I would say it won’t probably be effective until early next year.”

Depending how the timing works out, phased retirement might help ease the impact on agencies of the long anticipated retirement tsunami, when large numbers of baby boomers begin leaving the government.

“On paper, it sounds great,” Snell said. “It stems this tsunami with all the knowledge that goes out the door, and at the same time it provides a way to ensure the continuation of knowledge and skill.”


Chained CPI, TSP, and the 2014 budget

Fed employee group calculates lost benefits under chained CPI

OPM issues phased retirement guidance

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