Senate version of bill to standardize retiree COLAs emerges
The reintroduction of the Equal COLA Act by Sen. Alex Padilla, D-Calif., comes just weeks after the 2024 cost of living adjustment announcement revived complaints about how the government calculates annual increases across retirement systems.
Sen. Alex Padilla, D-Calif., last week reintroduced legislation that would standardize the annual increase in annuity payments that federal workers receive across the government’s two main pension systems.
The Equal COLA Act (S. 3194) would ensure that retirees enrolled in the Federal Employees Retirement System and the Civil Service Retirement System both receive the same annual cost-of-living increase each year.
When FERS was implemented in the 1980s, it introduced a two-tiered system for calculating how benefits increase each year to account for inflation, since the newer retirement system also provided federal employees access to a new form of saving for retirement: the 401(k)-style Thrift Savings Plan.
While CSRS calculates the cost of living adjustments based on the annual change in the third quarter consumer price index for workers, FERS COLAs are based on an extrapolation of that figure: if CSRS sees an increase of under 2%, FERS retirees will receive the full increase. But if the adjustment is between 2% and 3%, FERS enrollees would only receive a 2% increase. And if the CSRS adjustment is at least 3%, FERS retirees would receive that increase, minus 1 percentage point.
Though frustration with the annual COLA process has simmered among FERS participants for years, it has come in even sharper relief over the last two years, as the recent trend of high inflation has ensured that in 2023 and 2024, FERS retirees saw their annuity increases come in a full 1 percentage point behind their CSRS peers. In January, CSRS retirees will receive a 3.2% boost to their annuity payments, while FERS participants are only slated to receive a 2.2% increase.
Padilla’s bill, which was last introduced in the Senate in 2021 and is sponsored by Rep. Gerry Connolly, D-Va., in the House, would standardize both retirement systems’ cost of living increases by tying them both directly to the annual change in CPI-W. Also backing the legislation in the Senate are Sens. Bernie Sanders, I-Vt., Ben Cardin, D-Md., Patty Murray, D-Wash., and Elizabeth Warren, D-Mass.
“Federal retirees who have worked in service to our country should receive the full adjustment in benefits each year that is consistent with national economic trends,” Padilla said. “The Equal COLA Act will ensure the nearly 800,000 federal retirees living on fixed incomes receive the full benefits they deserve to keep up with the cost of living.”
William Shackelford, president of the National Active and Retired Federal Employees Association, said in a statement that the impact of differing cost of living adjustments across the retirement systems can be much larger than the 1 percentage point difference suggests.
“Unfortunately, when inflation is high, as it has been recently, FERS retirees only receive a diet COLA, reduced by as much as 1 percentage point,” Shackelford said. “This may not seem like a lot at first glance, but when the reduction compounds year after year, it could cost an average FERS retiree tens of thousands of dollars over the course of their retirement—and even more for many.”