COLA adjustments will slim for federal retirees in 2024
The annual announcement that some retired federal workers will receive a 3.2% increase in their annuity payments, while others will get only a 2.2% boost, has revived calls to standardize annual adjustments across retirement systems.
After two consecutive years of record increases, the annual cost-of-living adjustment for federal retirees will start to come back to earth in 2024, as federal employee groups revive their effort to end the two-tiered system for calculating the annual annuity increase.
The Social Security Administration on Thursday announced that Social Security beneficiaries will receive a 3.2% cost-of-living adjustment in January, a decrease from the four-decade high 8.7% imposed in 2023 and 5.9% in 2022, albeit still higher than most years in recent memory. SSA calculates the annual increase in annuities based on the annual change in the third quarter consumer price index for workers.
Federal retirees enrolled in the Civil Service Retirement System also will receive a 3.2% annuity increase, but former feds who are part of the newer Federal Employees Retirement System, which came into being in the 1980s along with the 401(k)-style Thrift Savings Plan, will receive only a 2.2% cost-of-living adjustment.
That’s because FERS’ annual increases are calculated based on an extrapolation of the Social Security and CSRS adjustment. Each year, if CSRS sees an increase of under 2%, FERS retirees receive the full COLA, while if the adjustment is between 2% and 3%, FERS enrollees only receive a 2% increase. And if the CSRS COLA is 3% or more, FERS retirees receive the Social Security and CSRS adjustment, minus 1 percentage point.
As was the case for the last two years, the announcement of a full 1 percentage point split between CSRS and FERS cost-of-living adjustments for 2024 has revived calls among employee organizations for Congress to pass the Equal COLA Act, legislation most recently introduced last February, to ensure retirees in both systems receive the same annuity increase each year.
“While NARFE celebrates the COLA announcement, not all in the federal community will reap its full benefits,” said National Active and Retired Federal Employees Association President William Shackleford. “FERS COLAs are capped at 2% when consumer prices increase between 2% and 3%, and are reduced by 1 percentage point when consumer prices increase by 3% or more. This inequitable policy, enacted in the 1980s with the creation of FERS, fails to fully protect the earned value of FERS annuities.”
When FERS was developed in the 1980s alongside the Thrift Savings Plan, lawmakers saw the lower COLA as a way to compensate for the fact that CSRS enrollees don’t have access to the 401(k)-style retirement savings plan. But in a blog post on its website, the American Federation of Government Employees, the largest labor union in the federal government, argued that the reduced annuity increases have real consequences for retirees, particularly during periods of high inflation.
“The difference for an average retiree is $18.37 a month, but over time, this could set FERS employees back thousands or even tens of thousands in retirement benefits, especially if we have a lot of high-inflation years,” the union wrote. “Already, someone who retired under FERS two years ago with an average benefit would have seen their pension fall $440 behind what their yearly benefit should be if it kept up with inflation.”