Cost of Living Adjustments and Pay Raises

Aug 28, 2018

raises

While both costs of living adjustments and pay raises provide an increase in pay, they aren’t that similar.

COLA’s

These pay adjustments are available to retirees. They are a measure of inflation and paid automatically (they don’t need Congressional approval). COLA’s are based on the change of the Consumer Price Index from the 3rd quarter (July -September) of the year that just ended to the 3rd quarter of the preceding year. They are effective December 1st and payable on the 1st business day in January.

CSRS

Civil Service Retirement System retirees get the full COLA amount regardless of age.

FERS

Federal Employee Retirement System retires don’t receive a COLA until age 62 unless you have retired under disability retirement, receive survivor benefits, or retired under special provisions.

If you have a CSRS offset, that part is subject to the CSRS COLA.

The calculation is much different for FERS retirees. You receive a percentage depending on the difference in the CPI amount. If the percentage is above 3%, FERS retirees receive that amount minus 1%. If the COLA amount falls between 2-3%, you receive 2%. And when the increase is 2% or less, the COLA is equal to that amount.

COLA’s are prorated if you retired during the calendar year before the COLA is paid, depending on how many months you were retired that year.

Raises

Raises are for active federal employees and are linked to labor market trends, not cost of living. These are determined through Congress and start with recommendations from the White House (that’s why you always see or hear about pay raises when the president unveils his annual budget requests). They are paid regardless of how long you’ve worked for the federal government. The formula is much more complicated here as the starting point is a measure of private sector wage growth called employee cost index.

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