Retirees looking at last full ‘diet COLA?’

When it comes to an employer-backed retirement plan federal and postal employees have two very big advantages over most private sector workers.

The first is a defined benefit pension plan, that is, a monthly benefit that is based on their length of service and their highest three-year average salary. By contrast most private sector employers no longer offer employees pensions. Instead, workers finance their own retirement via Social Security and a company-backed 401k plan.

For those who offer the latter, a company match of 3 to 4.7 percent is considered generous. None of them offer regular adjustments to help retirees keep up with inflation! So over time, as inflation goes up, the pension loses purchasing power unless it includes a good proportion of higher-risk, higher-reward stocks.

The second advantage is that people under the Federal Employees Retirement System, which covers most currently working feds, have a trifecta program. They get a civil service annuity, Social Security and have a 401k-like plan called the Thrift Savings Plan. All employees get a 1 percent match to their TSP and those who put in at least 5 percent get a matching 5 percent — the equivalent of a tax-deferred 5 percent pay raise — from their agency. FERS annuities are indexed to inflation up to a point.

As the National Association of Retired Federal Employees explains it, “FERS retirees would get a 2 percent cost of living adjustment if the CPI-W index increases by between 2 and 3 percent from last year. If the CPI-W increases by more than 3 percent, the COLA will be whatever the increase is minus 1 percent. For example, if the CPI-W increases by 3.2 percent, FERS retirees will receive a 2.2 percent COLA.” That’s known as a diet COLA.

The Trump administration wants to cut costs in the giant federal retirement program by totally eliminating future COLAs for FERS retirees. If it becomes law the 2019 COLA — assuming there is one — would be the last. Workers under the FERS plan would be required to increase their contributions to the FERS program by one percentage point a year for six years. That would mean a 6 percent cut in take-home pay, if it happens. CSRS retirees would be put on a diet COLA plan. So what are the odds?

Today our special guests on the Your Turn radio show are Jessica Klement and John Hatton. Jessica is chief of NARFE’s legislative advocacy department and John is her deputy. NARFE is part of a coalition of federal-postal unions and management groups dedicated to protecting benefits, including the retirement plan, from cuts. The CSRS and FERS programs are considered the jewel in the crown of federal civil service benefits and the coalition has successfully prevented past efforts to cut the programs.

So what are the odds they can do it again this year? And what about the odds of a 1.9 percent January federal pay raise? Listen to the show at 10 a.m. EDT at www.federalnewsradio.com or 1500 AM in the D.C. area. Episodes are archived on the Your Turn page. Questions about the retirement plan, the January COLA, the pay raise or anything else can be sent to me before showtime at mcausey@federalnewsradio.com

Nearly Useless Factoid

By Amelia Brust

Former President Gerald Ford was not born with that name. He was born Leslie Lynch King Jr., after his father Leslie King. Fifteen days after his birth, Leslie Jr. and his mother Dorothy King fled the abusive relationship and his parents divorced later that year. Ford was renamed for his stepfather Gerald R. Ford, whom his mother married when the future president was three years old.

Source: Gerald Ford Foundation

Related Stories

Comments

Your Turn with Mike Causey

WEDNESDAYS at 10 A.M.

Learn about everything from pay, benefits and retirement, to buyouts, COLAs and pay freezes. Call the show live Wednesdays from 10-11 a.m. at 202-465-3080 with your questions. Dial 605-562-0264 to listen live from any phone. Follow Mike on Twitter and send him an email with your questions and comments. Subscribe on Apple Podcasts or Podcast One.

Sign up for breaking news alerts

THRIFT SAVINGS PLAN TICKER

Oct 18, 2021 Close Change YTD*
L Income 23.2464 0.006 3.52%
L 2025 12.0488 0.0048 6.40%
L 2030 42.6765 0.0216 7.92%
L 2035 12.8342 0.007 8.58%
L 2040 48.6333 0.0284 9.26%
L 2045 13.3390 0.0082 9.83%
L 2050 29.2577 0.0191 10.41%
L 2055 14.4366 0.0115 12.65%
L 2060 14.4365 0.0114 12.65%
L 2065 14.4364 0.0115 12.65%
G Fund 16.6847 0.0021 0.99%
F Fund 20.8592 -0.0048 -1.40%
C Fund 67.5316 0.2276 15.90%
S Fund 86.5236 0.3505 11.66%
I Fund 38.9905 -0.1662 8.56%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.