Federal Retirees to Receive a 0.3 Percent Cost-of-Living Bump in 2017

Federal retirees will receive a cost-of-living adjustment of 0.3 percent next year, according to figures released by the Bureau of Labor Statistics on Tuesday.

The small increase is an improvement over this year, when retirees did not receive any boost. But it was disappointing to federal retiree advocates, who noted it does not keep pace with jumps in health care costs.

Average premiums for participants in the Federal Employees Health Benefits Program are slated to rise 6.2 percent in 2017, the Office of Personnel Management announced late last month. Federal retirees in the Civil Service Retirement System could also see a significant increase in their Medicare Part B premiums unless Congress acts, the National Active and Retired Federal Employees Association warned.

The “hold harmless” provision of Social Security law ensures that Medicare Part B premiums cannot grow more than the dollar amount of an individual’s Social Security benefit, meaning that in years when the COLA is low or nonexistent, Medicare Part B premiums will rise moderately if at all. But for those retirees who do not receive Social Security – including those in CSRS -- there is no such restriction and they will “shoulder the bulk of the cost of the 2017 premium increase,” NARFE noted.

“It is grossly unfair that those who pay their premiums from something other than Social Security must pay more in premiums,” NARFE President Richard Thissen said. “There is no reason why two people with the same income should pay different Medicare premiums based on whether the money is coming from a Social Security check or a federal annuity.”

The association urged lawmakers to address the disparity swiftly, noting that when it was announced there would be no COLA increase in 2016, Congress acted to limit the amount Medicare Part B premiums would rise for everyone, including those who were not protected under the “hold harmless” provision.

The American Federation of Government Employees also asked Congress to pass legislation to address the potentially large increase in Medicare Part B premiums for CSRS retirees, and noted the general financial pressures they face.

“Prices for many items that seniors must purchase are rising faster than the overall inflation rate,” said AFGE National President J. David Cox Sr. “Forcing this group of retirees to shoulder such a huge cost burden will have a devastating impact on their already modest living standards.”

The 2017 COLA applies to all retirees receiving Social Security benefits, not just federal retirees. It will take effect starting with December 2016 benefits.

The annual COLA is based on 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 CPI-W for the third quarter of the last year in which a COLA became effective. This year the average CPI-W for July, August and September was 235.057. The average for the third quarter of 2014 – the last year in which there was a COLA announced – was 234.242.

If the percentage increase is less than 2 percent, then retirees under the Federal Employees Retirement System receive the full COLA (and the same amount as Civil Service Retirement System retirees). If the change is 2 percent to 3 percent, FERS retirees receive 2 percent. And if the increase is 3 percent or higher, FERS retirees receive 1 percentage point less than the full increase.

The 2017 COLA will be the lowest non-zero increase since 1975, according to the Committee for a Responsible Federal Budget, a nonprofit fiscal policy group. For a history of COLAs and federal employee pay raises going back to 1970, review this Retirement Planning column from Tammy Flanagan.

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