How lawmakers are looking to change the COLA for federal retirees

House lawmakers have reintroduced the Equal COLA Act, to equalize cost-of-living adjustments for federal retirees, and the Fair COLA for Seniors Act, to change ...

House lawmakers are pushing forward plans to change annual cost-of-living adjustments for federal retirees in more ways than one.

For one, the familiar Equal COLA Act, which Rep. Gerry Connolly (D-Va.) reintroduced, would change how the annual cost-of-living adjustment, commonly called the COLA, is calculated for the Federal Employee Retirement System (FERS).

Specifically, the bill would give FERS retirees a full annual COLA to their annuity payments, in effect, achieving parity with retirees in the Civil Service Retirement System (CSRS), who already receive the annual COLA in its entirety.

FERS retirees currently receive up to 1% below the full COLA, but it depends on the actual percentage adjustment in a given year. In particular, if the COLA increases less than 2%, FERS retirees receive the full COLA. If the COLA increases 2% to 3%, FERS retirees receive a 2% COLA. And if the COLA increases more than 3%, FERS retirees receive 1% less than the full COLA.

For example, the 2023 COLA was 8.7% — the highest percentage increase since 1982. But FERS retirees saw only a 7.7% COLA.

Cost-of-living adjustments are designed to keep federal and military retirees and Social Security recipients, on par with inflation. Congress originally decided to reduce the COLA for FERS retirees in part, because employees in the newer retirement system, which began in 1987, get a matching government contribution of up to 5% for their Thrift Savings Plan. While CSRS retirees do not.

But lawmakers, like Connolly have said, the process the government uses to calculate COLAs for FERS retirees is unfair and that the Equal COLA Act would address it.

“This two-tiered system fails to protect FERS retirees who are living on a fixed income,” Connolly said in a statement. “This legislation will rectify this unfair system and ensure these dedicated public servants are protected throughout their retirement.”

The lack of COLA parity, between CSRS and FERS retirees, has also been a longstanding pain point for federal advocacy groups and unions, including the National Active and Retired Federal Employees (NARFE) Association, as well as the National Treasury Employees Union (NTEU). The organizations quickly endorsed the reintroduction of the Equal COLA Act.

“When the reduction compounds year after year, it may cost an average FERS retiree tens of thousands of dollars over the course of their retirement — and even more for some,” NARFE National President William Shackelford said in a statement.

“The time has come for parity in how cost-of-living increases are calculated for federal retirees,” NTEU National President Tony Reardon said in a statement. “The Equal COLA Act … [ensures] that FERS and CSRS annuitants are treated equally and fairly when economic conditions require a cost-of-living increase for these retired civil servants.”

Fair COLA for Seniors Act

Another bill would alter how the annual cost-of-living adjustment is calculated overall.

The Fair COLA for Seniors Act, which Rep. John Garamendi (D-Calif.) reintroduced, would require Social Security to calculate the COLA based on the Consumer Price Index for the Elderly (CPI-E). The legislation garnered 19 original co-sponsors, all Democrats.

The CPI-E is focused on individuals ages 62 and older, the minimum age requirement for those who receive the annual COLA. Specifically, the price index emphasizes healthcare spending in its calculation.

Currently, the Social Security Administration calculates the COLA each year, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). A broader price index that focuses on the spending patterns of what the name implies: urban wage earners.

Proponents of the Fair COLA for Seniors Act have said the CPI-W doesn’t accurately account for seniors’ spending habits, which often have larger proportions going toward health care spending.

According to the Government Accountability Office, about 12% of the total spending for individuals ages 62 and older goes toward health care. That’s compared with 8% of the total spending for the rest of the U.S. population.

NARFE has voiced its support for the legislation, saying the bill would ensure fairer COLAs for federal retirees by more precisely tracking their spending habits.

“It only makes sense that more weight should be given to the cost of health care when determining COLAs for our nation’s seniors. And that is exactly how CPI-E operates,” Shackelford said in a statement. “That is why NARFE supports making a change to CPI-E, as it would more accurately track the spending habits of seniors in comparison to the broad category of urban wage earners.”

Notably, the Fair COLA for Seniors Act would provide the same change in price index for both CSRS and FERS retirees.

 

 

Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.

Related Stories