Diet COLAs bad for future retirees

Thanks to the diet COLA rule, people who have already retired under FERS will be limited to a 2 percent COLA in 2019.

Most current federal and postal retirees are under the old Civil Service Retirement System. It guarantees them a full catch-up-with-inflation protection like the 2.8 percent cost-of-living adjustment they will receive in January.

Most current federal and postal workers who are still on the job are under the newer Federal Employees Retirement System, which has a diet COLA component that generally means when they retire they will have less — in some cases much less — protection from the ravages of inflation. Thanks to the diet COLA rule, people who have already retired under FERS will be limited to a 2 percent COLA in 2019.

Why the difference? When FERS was created politicians decided to slow the growth of future federal benefit costs by putting future retirees under the diet COLA system. Over time that will save the federal retirement system billions of dollars, by limiting FERS retirees to less than full COLAs any time the adjustment exceeds 2 percent. In times of high inflation, regular civil service and CSRS offset retirees will get increases that are 1 percent less than the full inflation rate.

For example, if CSRS retirees in future get a 4 percent or 6 percent COLA, which happened often in the past, their FERS counterparts would get a 3 percent or 5 percent catch-up. In 2009, CSRS retirees got a 5.8 percent inflation catch-up while FERS retirees were limited to 4.8 percent.

What next? Look for groups representing both active and retired feds to make a big push in the future to put those under FERS under the same catch-up formula as CSRS retirees. At the same time, the groups will be pushing Congress to base future adjustments on the Consumer Price Index-E. Currently, COLAs are determined by the CPI-W. Switching from the W to the E CPI scale would, on average, mean future inflation catch-ups that, on average, would be 0.2 more. It doesn’t sound like much, but over time the change would mean more money to spend in retirement.

Nearly Useless Factoid

By Amelia Brust

Thomas Jefferson is credited with introducing french fries to America when he returned from France with a recipe for “pommes de terre frites a cru en petites tranches,” which loosely translates to “deep-fried potatoes in small cuttings.” French and Belgian cooks have argued where the dish truly originated, however.

Source: Monticello

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