Retiree COLAs vs. workers pay raise: Why the difference?

Federal workers this month are getting a 3.1% total pay and federal-postal retirees are getting a 1.6% cost of living adjustment. Both the raise and the COLA are the largest in years, yet why the difference?

Short answer: Different yardsticks — fed pay raises are a political/financial decision made each year by Congress and the White House. COLAs are based on the rate of inflation as measured by the Consumer Price Index-W. While it’s been that way for decades, many people, many of them retirees, think it’s the wrong measurement. Consider this:

Back in 1999, American taxpayers lost $125 million when the Mars Climate Orbiter, designed to orbit the climate of Mars, hence the name, missed its target. The reason was, although superbly engineered, one group of designers and builders at an aircraft company in Denver did their calculations in the English units (pound-seconds) while those designing the MCO at the Jet Propulsion Lab in California used the metric system. Oops!

Ken Thomas, president of the National Active and Retired Federal Employees, thinks Uncle Sam is doing the same thing with the lifetime annuities of active and retired civil servants. It’s not working, Thomas says, because the government is using the wrong measuring tool to track inflation. Because of that, he says, cost of living adjustments for retirees are always off-target, like the Mars Climate Orbiter. Except that retirees collectively lose more because they fall further behind inflation each time they get a COLA. And he says it would be so easy to fix, that two votes in the House and Senate would do the trick.

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Most current federal retirees left government under the Civil Service Retirement System which was phased out in the 1980s. The CSRS plan provides a more generous retirement benefit, to which workers contribute, based on salary and length of service than the Federal Employees Retirement System program that replaced it. Most current federal-postal workers will retire under the FERS program. CSRS retirees get a full cost of living adjustment in January to keep pace with inflation. In January 2020, both CSRS and FERS retirees, as well as people who get Social Security, will get a 1.6% COLA. But because of a diet-COLA feature of their system, those under FERS get smaller catch-ups if inflation exceeds 2%. For example this year the COLA for CSRS retirees, people under Social Security and military retirees was 2.9%. But because of diet COLA provision FERS retirees age 62 and older got only 2%. Those under 62 years old got nothing.

When Congress setup the Civil Service Retirement System it eventually provided inflation protection, as in a COLA if necessary each January to keep pace with inflation. And it does, up to a point. But NARFE, and groups and unions representing rank-and-file feds, managers and professionals say that the government is using the wrong measurement. They say it consistently year-after-year underestimates the impact on federal retirees and older people in January. Currently the Bureau of Labor Statistics used the CPI-W. It measures changes in the cost of various products, goods and services used by working age people on a city-by-city, monthly basis. The amount of the January COLA is based on the rise, if any, of the CPI-W from the third quarter of the current year over the third quarter of the previous year. That produced the 2020 COLA.

But opponents of the system say the BLS is using the wrong orbiter to measure inflation’s impact on older people here on Planet Earth, which is where all of them live. Seniors usually spend less on goods and services used by working-age people but lots more on health care related items which are measured by the CPI-E (E for elderly).

What’s the difference? The next COLA for retirees will be 1.6%. But health insurance premiums, on average, are going up 5.6% in 2020. In many cases the older retirees will be spending more for health-related things and services than younger workers and may feel they need higher-priced health plans to meet their needs.

The fix is simple — sort of. Congress has before it a bill, H.R. 1533. Its called the Fair COLA for Seniors Act. If enacted future COLAs would be based on the CPI-E rather the CPI-W. Doesn’t sound like a big difference. But it’s meters versus miles.

Ask the Denver company that built its half of the Mars Orbiter using standard measurements while their colleagues at the JPL were using metrics.

Nearly Useless Factoid

By Amelia Brust

While we have earthquakes, the moon is believed to have experienced “moonquakes.” The moon is shrinking as its interior cools, getting more than about 150 feet (50 meters) skinnier over the last several hundred million years. When the surface crust shrinks, it wrinkles. And because the crust is brittle, it breaks as it wrinkles, forming “thrust faults” where one section of crust is pushed up over a neighboring part. This results in a quake.

Source: NASA

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