Mike Theiler

Fed Groups Blast Proposed Switch to Less Generous COLA Formula

Retiree advocates worry Congress and White House will reduce benefits in a deal to raise debt limit.

Advocates for federal and military retirees are worried Congress and the White House will agree to reduce retirement benefits as part of a deal to raise the debt ceiling.

The proposed change, under consideration in several deficit reduction talks during the past year, involves switching to a less generous formula for determining cost-of-living adjustments for federal retirees and Social Security beneficiaries.

The result would be lower COLAs for retirees, including federal and military retirees, over time. The change also would affect veterans’ benefits and disability insurance benefits.

“As our leaders in Congress debate yet another grand bargain, we are here to reiterate that no deal should come at the expense of our seniors and the most vulnerable,” said Jessica Klement, legislative director at the National Active and Retired Federal Employees Association, during a rally on Capitol Hill Wednesday. The event also included the National Committee to Preserve Social Security and Medicare, the Military Officers Association of America and the American Foreign Service Association, as well as Sen. Bernie Sanders, I-Vt., and Rep. Jan Schakowsky, D-Ill.

“There’s a troubling theme shared by both the shutdown and the chained CPI,” added Klement. “The general disregard for the well-being of the men and women who serve our country must stop.”

COLAs currently are determined using a formula that takes into account increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. But some economists argue that switching to a formula using what’s known as the “chained CPI,” which takes into account modifications in purchasing habits as prices change, provides a clearer understanding of inflation.

It also would save the government money.

The government publishes the annual cost-of-living adjustments typically in late October, based on the percentage increase (if any) 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 2013 COLA is 1.7 percent.

NARFE and other opponents of the change argue that the current index and the chained CPI do not account for how much seniors spend on health care. And they said switching to the chained CPI would increase taxes on lower- and middle-income taxpayers and adversely affect job growth in every congressional district in the country. NARFE and others support switching to the CPI-E index, which the Bureau of Labor Statistics uses when calculating an experimental price index for elderly consumers. Under that measure, inflation is more than it is under the CPI-W, which would yield more generous COLAs.

This is how a 2010 memo from the nonpartisan Congressional Budget Office explains the chained CPI: “The chained CPI grows more slowly than the traditional CPI does: by an average of 0.3 percentage points per year over the past decade. As a result, using that measure to index benefit programs and tax provisions would reduce federal spending (especially on Social Security and federal pensions) and increase revenues.”

And this is how a February 2012 article from the Center on Budget and Policy Priorities puts the issue into context: “Many of the federal government's retirement, disability and income-support programs -- including Social Security, federal civilian and military retirement, railroad retirement, [Supplemental Security Income], and veterans' compensation and pensions -- pay annual COLAs that are linked to the CPI.” The line was included under a subheading that read “Using Chained CPI Would Affect a Number of Programs and Save Significant Amounts.”

Under the chained CPI, NARFE estimated that over the next 25 years, federal retirees would lose $48,000, military retirees would lose $42,000 and Social Security recipients would lose $23,000. Wednesday’s rally featured more than 40 shoeboxes with more than $100,000 worth of coupons, collected by NARFE members from all 50 states to represent the average financial loss to retirees. The average Social Security benefit now is about $15,000 per year.

“So I say to the Congress, and I think our champions here would agree with me, stop the malarky,” said Max Richtman, president and chief executive officer of NCPSSM. “Stop the malarky. Pass a continuing resolution that funds the government, raise the debt limit without -- without -- cutting Social Security, Medicare and Medicaid.”

The Obama administration has supported switching to the chained CPI in previous deficit reduction talks. The White House plans to meet with congressional leaders over the next week to figure out how to raise the debt limit before the Treasury exhausts its emergency borrowing authority on Oct. 17. At that point, Treasury will have only about $30 billion cash on hand to pay the country’s bills.

Schakowsky said that any discussion about Social Security should be “completely separate from this budget negotiation wherever the suggestion comes from.”

The Illinois Democrat said she has spoken directly to the president about the chained CPI proposal and was “hopeful” that it would not be part of any final deal. “And let’s be clear, the president said he will not be part of any negotiation without serious revenue on the table,” Schakowsky told reporters. “So far, we have not seen that at all from the Republicans.”