COLAs for both CSRS and FERS are calculated based on the same data that SSA uses to calculate their COLAs, the CPI-W figures for July, August, and September of each year. Like SSA, neither CSRS nor FERS has had a COLA since January, 2009.
For CSRS, this the end of the story. CSRS annuitants will receive a 3.6% COLA in January 2012, exactly like SSA beneficiaries.
For FERS, the story is a little different. Under FERS, the basic retirement annuity receives a COLA equal to the increase in the CPI-W only if the increase in the CPI-W is less than 2.0%. If the increase in the CPI-W exceeds 2.0%, as it did this year, the COLA is reduced. Here are the rules —
* If the CPI-W increases by up to 2%, then the FERS annuity increases by the same percentage.
* If the CPI-W increases by 2% to 3%, the FERS annuity increases by 2%.
* If the CPI-W increases by more than 3%, the FERS annuity increases by the rise in the CPI-W minus one percentage point.
Since the CPI-W increased by 3.6%, then the third option applies. The FERS COLA is only 2.6%
For those of you who aren’t retired Federal employees, please allow me to explain the difference between CSRS and FERS.
CSRS (the Civil Service Retirement System) came into existence in 1920. It predates Social Security. Basically, workers contributed 7% of their wages into the trust fund. The amount of the annuity was based on the the number of years that the worker paid into the system, the amount he earned in his highest three years, and his age at retirement.
FERS (the Federal Employees Retirement System) became effective for all Federal employees hired on or after January 1, 1984. This coincided with the day that all newly hired Federal employees were mandatorily covered by Social Security. Workers contribute 1% of their wages into the trust fund. They also contribute the same amount as all other workers into Social Security. Lastly, they have something called the Thrift Savings Plan (TSP,) which is similar to a 401(k.) Participation in the TSP is optional, and the worker can choose a variety of places where to invest his money, from Treasury bonds to Wall Street. Those workers who chose to have their thrift savings contributions go to Wall Street took a severe beating in 2008. We had a friend who told us it would take years for her to recover what she had lost in the 2008 crash. She lost 44% of the value of her TSP.
Like all Federal employees who were employed by the government prior to January 1, 1984, I was given the option to switch from CSRS to FERS and SSA. I did some figuring and determined that it would cost me about 3% additional out of each paycheck to match my benefits under CSRS. I declined. Most did. One good thing about FERS — every Senator and Representative elected for the first time since January 1, 1984, is covered by FERS. That, plus Social Security is their retirement system. They get nothing fancy, unless the millionaires and billionaires and corporations who have bought them have made some private arrangements for their retirement.