A Look Ahead

In my last column, I took a look back at changes in the federal retirement world in 2012. This week, let’s take a look ahead at what has already changed for 2013, and what other developments might be on the horizon.

COLAs

Civil Service Retirement System retirees (including survivor annuitants), eligible Federal Employees Retirement System retirees (including survivor annuitants), Social Security recipients and military retirees received a 1.7 percent cost-of-living adjustment to their benefits on Jan. 1. CSRS retirees whose benefits began between Jan. 1 and Nov. 30, 2012, received a portion of this COLA based on the number of months they were retired before Dec. 1.

Eligible FERS retirees include those who retired under special retirement provisions (such as law enforcement officers and firefighters), regular retirees 62 and older, and disability retirees. FERS retirees who were entitled to the COLA, but whose benefits began between Jan. 1 and Nov. 30, 2012, received a pro-rated COLA based on the number of months they were retired before Dec. 1.

Children’s survivor benefits increased by 1.7 percent as well. Under FERS, these benefits are reduced by Social Security benefits paid to surviving children.

FERS Changes

The New Year also has brought a few changes that mostly affect FERS retirees:

• The earnings limit for retirees receiving the FERS supplement and for Social Security beneficiaries who are younger than their full retirement age has increased to $15,120.
• Newly hired federal employees will be covered under the FERS-Revised Annuity Employees system. These employees must make an additional contribution to their retirement benefits of 2.3 percent of basic pay. Employees already in FERS as of Dec. 31, 2012, are not covered by the new provisions. (Incidentally, members of Congress and congressional employees also are now covered under the new system, and in addition they will now accrue retirement benefits at the same rate as regular federal employees.)
• The annual limit for elective deferrals to the Thrift Savings Plan has gone up to $17,500 for 2013, while the “catch-up” contribution amount remains at $5,500.

Payroll Tax Holiday Over

In the recently completed fiscal cliff deal, Congress and the Obama administration agreed to end the payroll tax holiday. So the FICA tax will increase to 6.2 percent for employees during 2013. The maximum taxable wage subject to this tax has increased to $113,700.

What Might Happen

Some ideas that have been floated in Congress and the White House could affect future federal retirement benefits, and doubtless will be debated again this year.

One revenue-generating proposal known as “chained CPI” would involve implementing a new way of using the Consumer Price Index to determine annual cost-of-living adjustments to federal benefits, including Social Security payments, CSRS and FERS retirement benefits and military retirement benefits. Here’s more information on how the chained CPI would play out.

Other potential changes that have been floated in budget negotiations and by independent deficit-reduction commissions include changing from using the highest three years of salary to compute retirement benefits to a high-five approach; eliminating the FERS supplement; and increasing retirement contributions for current employees.

Remember, none of these proposals have been enacted -- yet.

Correction: The original version of this column indicated that the earnings limit for retirees receiving the FERS supplement and for Social Security beneficiaries who are younger than their full retirement age has increased to $14,120. The correct figure is $15,120. The article has been updated to correct the error.