Pay raises and retiree COLAs: Good news vs. bad news

As often happens in the workplace, the good news and the bad news can be the same thing. This can be true for retirees, too.

For example, after going weeks without pay during the not-so-great government shutdown, some 800,000 feds, many of whom were forced to work while others forced to stay home for 35 days, have finally gotten or will be getting their retroactive pay. That’s the good news.

The bad news, however, is that because of deductions that disappeared because of the Tax Cuts and Jobs Act of 2017, many of the lump sum payments workers have gotten are much less than they anticipated. Many people who normally get tax refunds from the federal government are learning they will be smaller this year, or in some cases they could wind up owing the government.

For federal workers the good news is that Congress approved a 1.9 percent raise for them despite the fact that the president wanted to freeze pay in 2019. Once locality pay is factored in, the raises will range from 1.5 percent to as much as 2.2 percent in some high-wage areas such as San Francisco, Washington, D.C.; New York City, Los Angeles and Houston.

That’s good news if you are in a locality pay zone, not so good news if you are in the RUS (rest of the United States). More on that can be found in Tuesday’s column.

Percentage-wise the 2019 pay raises for federal workers will be smaller than the 2.8 percent cost of living adjustment for retirees under the Civil Service Retirement System and Social Security. And it is the biggest COLA in 7 years. That’s the good news for them. But for retirees under the Federal Employees Retirement System, which also covers the majority of still-working feds, their diet COLA formula means they will only get 2 percent. That doesn’t seem like much of a loss but it could be a sign that inflation is on the rise and that future COLAs for FERS retirees will fall further and further behind.

The diet COLA formula means that anytime the COLA — based on the actual inflation rate — goes up between 2 percent and 3 percent for CSRS retirees those under the newer FERS plan will be limited to an inflation catch up of only 2 percent, like this year. If the COLA is above 3 percent, FERS retirees will get the equivalent of the CSRS COLA minus 1.0 percent.

So while a higher COLA is better because it helps retirees keep up with inflation, the fact that it is higher means FERS retirees will fall further behind, meaning their costs will rise but their income won’t each year.

Nearly Useless Factoid

By Amelia Brust

Although it’s now synonymous with Japan, sushi is thought to originate from Southeast Asia in the second century A.D. People needed a way to keep fish fresh without refrigeration, so cured meat would be wrapped in rice and fermented. Months later the rice would be discarded and the fish eaten. Eventually the idea spread to China and Japan where it evolved into the edo sushi style of raw fish and vinegar-treated rice popular today.

Source: University of Florida

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

Nov 30, 2020 Close Change YTD*
L Income 22.0426 -0.0377 1.01%
L 2025 10.9118 -0.0426 -
L 2030 37.7239 -0.183 0.12%
L 2035 11.2251 -0.0599 -
L 2040 42.0825 -0.2458 -0.21%
L 2045 11.4379 -0.0718 -
L 2050 24.8569 -0.167 -0.56%
L 2055 11.8630 -0.0976 -
L 2060 11.8631 -0.0975 -
L 2065 11.8632 -0.0976 -
G Fund 16.4964 0.0012 0.82%
F Fund 21.1668 0.015 6.30%
C Fund 53.8426 -0.2398 2.69%
S Fund 69.1907 -0.7648 3.97%
I Fund 33.8194 -0.4237 -10.53%
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.