Federal Retirees Are Set to Receive the Highest COLA in Decades
In 2023, beneficiaries of the Civil Service Retirement System will receive defined benefit pension payments that are 8.7% higher than those of the Federal Employees Retirement System, who would only experience a 7.7% increase.
The Social Security Administration said Thursday that the annual Social Security cost-of-living adjustment for 2023 will be 8.7%, which would result in the highest yearly rise in benefits payments for federal retirees in decades. However, not all federal retirees will receive the full 8.7%, leading to fresh calls for equity between the retirement systems of the federal government.
The annual change in the third quarter worker consumer price index is used to determine Social Security’s cost of living adjustments. On the basis of how the Civil Service Retirement System calculates annual annuity increases for participants, retirees in CSRS will get an 8.7% increase in annuity payments in 2023, the highest COLA since 1981.
The cost of living adjustment received by Social Security and CSRS annuitants for the year was 5.9%, the highest level since 1982.
But only a 7.7% rise in annuities will be given to former federal employees who are registered in the more recent Federal Employees Retirement System, which was created alongside the Thrift Savings Plan, which is modeled like a 401(k).
This is so because the cost-of-living adjustment for CSRS and Social Security is extrapolated to operate FERS. FERS retirees receive the entire COLA each year if CSRS sees an increase under 2%. FERS participants only get a 2% raise if the adjustment is between 2% and 3%. Additionally, FERS retirees receive the Social Security and CSRS COLA, less 1%, if the CSRS COLA is 3% or higher.
Organizations that advocate for federal employees and retirees have expressed frustration with the methodology that lowers the annual growth in defined benefit payments for FERS participants. The annual cost-of-living increases that federal retirees receive across both retirement systems would be standardized, according to legislation that was proposed earlier this year by Sen. Alex Padilla, a Democrat from California.
The January 2023 COLA for those who retired under the Federal Employees Retirement System will, regrettably, be 7.7%, according to Ken Thomas, national president of the National Active and Retired Federal Employees Association. This is in contrast to the 8.7% increase in CSRS annuities and Social Security benefits. The earned value of FERS annuities, which fall in value year after year—exactly what COLAs are designed to prevent—is not fully protected by this unfair policy, which was implemented in the 1980s with the founding of FERS.
The government should replace the economic metric used to determine the annual increase in retirement annuities with one that more accurately reflects retiree expenditure, such as the consumer price index for the aged, Thomas reaffirmed, in line with the organization’s request. President Biden supported this notion during the 2020 presidential campaign, but it hasn’t materialized yet.
Seniors spend more money on healthcare than any other group of people, and those who sign up for Federal Employees Health Benefits plans in 2023 will see an average increase in premiums of 8.7%, which is the highest increase since 2011, according to Thomas. “For years, NARFE has urged Congress to pass legislation requiring the [Bureau of Labor Standards] to calculate COLAs based on the consumer price index for the elderly (CPI-E) instead of the consumer price index for workers in order to address the equity of COLAs that don’t keep up with rising health care costs (CPI-W)
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