Federal Retirees Will Receive 1.5 Percent COLA Next Year

Federal retirees will see a 1.5 percent increase in their annuities starting in January, according to figures released Wednesday.

The 2014 cost-of-living adjustment is a relatively small one, and marks the second consecutive year the figure has dropped. The 2013 COLA was 1.7 percent, while the 3.6 percent boost in 2012 was the first COLA increase since 2009.

The cost-of living-adjustment is based on inflation, which stayed relatively low in 2013. The calculation reflects the percentage increase in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective.  The CPI-W measures price changes in food, housing, gas and other goods and services.

The Bureau of Labor Statistics was originally scheduled to announce the 2014 COLA two weeks ago, but the announcement was delayed due to the government shutdown.

The adjustment also applies to 63 million beneficiaries of Social Security and Supplemental Security Income. Since automatic COLAs began in 1975, the average increase has been just more than 4 percent, according to the Associated Press. Social Security beneficiaries will receive an average of a $19 increase each month, AP reported. 

The relatively small adjustment ensures retirees covered by the Federal Employees Retirement System as well as the Civil Service Retirement System will receive the full 1.5 percent increase. If the COLA increase had been 3 percent or higher, FERS retirees would have received 1 percent less than the full increase.

Typically, the actual COLA amount recipients end up with is reduced by annual increases in Medicare Part B premiums. This year, however, the Centers for Medicare and Medicaid Services announced the premiums will stay the same in 2014, meaning federal retirees and Social Security beneficiaries will receive the full adjustment. 

Federal retiree groups were pleased with the announcement, but said the small increase demonstrates the need to use a new formula to calculate COLAs.

"The cost-of-living adjustment for next year is welcome news for countless Americans who rely on the increase to keep up with the rising price of food, housing, transportation and medical care,” said Joseph Beaudoin, president of the National Active and Retired Federal Employees Association. “Despite the partial relief this COLA will provide, the announcement is a reminder that our method for calculating the rising cost of goods and services is out of sync with the reality faced by millions of federal retirees, Social Security recipients and military retirees, who spend more than twice as much on medical care than the population measured by the CPI-W formula.”

He added that proposals to switch to a “chained CPI” when calculating COLAs -- which uses a less generous formula for calculating inflation -- would “only make a bad situation worse.” President Obama has floated the idea in an effort to compromise with congressional Republicans, but only when paired with an increase in tax revenues.

House Democrats recently condemned the approach, calling on congressional budgeters to find an alternative way to reform Social Security that would not hurt federal retirees.

The COLA increase does not affect salaries for current federal employees. Absent congressional action before the end of the year, current workers will receive a 1 percent raise in 2014. 

(Image via K-Kwan Kwanchai/Shutterstock.com)