We have received quite a few comments to the effect that President Obama will find some way to deny or reduce whatever COLA is paid, or that he was somehow responsible for there being no COLA the last two years. He doesn’t technically have the authority. I know, when has this stopped him in the past? But there would be a terrible political cost going into a Presidential election year that I doubt he would be willing to pay.
What do the applicable law and regulations say about SSA’s COLA? First, the law. I’ll start with some definitions from the law:
From Section 215(i)(1) of the Social Security Act, which provides the legal basis for Social Security COLAs:
“… the term “base quarter” means (i) the calendar quarter ending on September 30 in each year after 1982…”
Every year, the period from July through September is that year’s “base quarter.”
“… the term “cost-of-living computation quarter” means a base quarter, as defined in subparagraph (A)(i), with respect to which the applicable increase percentage is greater than zero…”
In other words if the current “base quarter” has a higher average CPI than the previous “cost-of-living computation quarter,” it becomes the new “cost-of-living computation quarter.”
“… the term “CPI increase percentage”, with respect to a … cost-of-living computation quarter in any calendar year, means the percentage (rounded to the nearest one-tenth of 1 percent) by which the Consumer Price Index for that quarter…exceeds such index for the prior calendar quarter which was … the most recent cost-of-living computation quarter under subparagraph (B)…”
In English, the “CPI increase percentage” is the percentage by which the CPI for the current “cost-of-living computation quarter” exceeds the CPI for the most recent “cost-of-living computation quarter” rounded to the nearest 0.1%.
This year we will be comparing the CPI for July through September, 2011 (the current “cost-of-living computation quarter”) against the CPI for July through September 2008 (the most recent “cost-of-living computation quarter.”)
One thing that Section 215(i)(1)(D) doesn’t specify is which CPI index SSA is to use for all these comparisons and computations. The Bureau of Labor Statistics publishes three of them, the CPI-U, the CPI-W, and the C-CPI-U.
However, the implementing regulations (20 CFR (Code of Federal Regulations) §404.272) provide that the COLA will be based on
“(t)he revised Consumer Price Index (CPI) for urban wage earners and clerical workers as published by the Department of Labor.”
In other words, the CPI-W is the applicable index for the foreseeable future. There is a provision that would base the COLA on a different metric, but that only will take effect when the combined OASI and DI trust funds are virtually exhausted, in around 2035 if the law is not changed.
What are the specific instructions to SSA in the Act? What does SSA do with it? According to Section 215(i)(2)(A)(i) of the Act,
“The Commissioner of Social Security shall determine each year beginning with 1975 (subject to the limitation in paragraph (1)(B)) whether the base quarter…in such year is a cost-of-living computation quarter.
Section 215(i)(2)(A)(ii) provides,
If the Commissioner of Social Security determines that the base quarter in any year is a cost–of–living computation quarter, the Commissioner shall, effective with the month of December of that year as provided in subparagraph (B) increase…” the benefit amount, the primary insurance amount, and the monthly payment amount. The amount of the increase will be the “CPI increase percentage” as defined above.
In other words, the authority is delegated directly to the Commissioner of Social Security to determine whether or not the “base quarter” is also a “cost-of-living computation quarter.” If it is, a COLA is due. The Commissioner shall increase the benefit amount, the primary insurance amount, and the monthly payment amount. The amount of the increase will be the “CPI increase percentage” as defined in Section 215(i)(1)(D) of the law. Note that the Act refers to December. The payment for December is the one which is received in January of the following year.
This is the law. For President Obama to change the COLA amount, or cancel it outright, would be a blatant violation of law, technically an impeachable offense. I just don’t see this happening.
I hope this reassures those who are afraid that somehow the COLA we have been predicting for months would be taken away or somehow evaporate.