Order Code 94-803 EPW
Updated October 16, 2008
Social Security: The Cost-of-Living
Adjustment in January 2009 Adjustments
Gary Sidor
Information Research Specialist
Knowledge Services Group
http://wikileaks.org/wiki/CRS-94-803
Summary
To compensate for the effects of inflation, Social Security recipients receive a costof-living adjustment (COLA) in January of each year. The Consumer Price Index for
October 20, 2009
Congressional Research Service
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94-803
CRS Report for Congress
Prepared for Members and Committees of Congress
Social Security: Cost-of-Living Adjustments
Summary
To compensate for the effects of inflation, Social Security recipients have received a cost-ofliving adjustment (COLA) each year since a trigger mechanism was implemented in 1975. The
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), updated monthly
by the
Department of Labor’s Bureau of Labor Statistics (BLS), is the measure used to compute
the change. The Social Security COLA is based on the percentage change in the average
CPI-W for the third calendar quarter of the previous year to the third calendar quarter
index from the
highest third calendar quarter average CPI-W recorded (most often, from the previous year) to the
average CPI-W for the third calendar quarter of the current year. The COLA becomes effective in
December of the current year and
is payable in January of the following year. (Social Security
payments always reflect the
benefits due for the preceding month).
The 5.8% COLA payable in January 2009 was triggered by the rise in the CPI-W
from the third quarter of 2007 to the third quarter of 2008. This COLA triggers identical
percentage .) If there is no percentage
increase in the CPI-W between the measuring periods, no COLA is payable.
No COLA will be payable in January 2010 because the average CPI-W for the third quarter of
2009 did not increase from the average CPI-W for the third quarter of 2008.
Because no COLA will be paid to Social Security beneficiaries in 2010, identical percentage
increases in Supplemental Security Income (SSI), veterans’ pensions, and
railroad retirement
benefits, and causes otheradditional changes in the Social Security program.
Although , will not be triggered. Although
COLAs under the federal Civil Service Retirement System (CSRS) and the
federal military
retirement program are not triggered by the Social Security COLA, these
programs use the same
measuring period and formula for computing their COLAs.
Their recipients will also receive a 5.8% COLA in January 2009. This report is updated
annually.
How the Social Security COLA Is Determined
An automatic Social Security benefit increase reflects the rise in the cost of living
over roughly a one-year period. The CPI-W, updated monthly by the BLS, is the measure
used to compute the change. The Social Security COLA is based on the percentage
change in the average CPI-W for the third calendar quarter of the previous year to the
third calendar quarter of the current year. The COLA becomes effective in December of
the current year and is payable in January of the following year (Social Security payments
always reflect the benefits due for the preceding month).
CRS-2
The January 2009 COLA
The amount of the January 2009 COLA became known on October 16, 2008, when
the BLS announced the September 2008 CPI-W figure. The release of the September
2008 index amount made the comparison of the two July-September sets of CPI-W
figures needed to compute the COLA (one for 2007 and another for 2008) possible.
Table 1 shows how the January 2009 COLA is computed under procedures set forth in
Section 215(I) of the Social Security Act.
Table 1. Computation of the Social Security COLA, January 2009
http://wikileaks.org/wiki/CRS-94-803
CPI-W Index Points
July 2007
203.700
August 2007
203.199
September 2007
203.889
Average for Third Quarter of 2007 (rounded to the nearest
one-thousandth of 1%):
203.596
July 2008
216.304
August 2008
215.247
September 2008
214.935
Average for Third Quarter of 2008 (rounded to the nearest
one-thousandth of 1%):
215.495
Percentage increase from the third quarter average for 2007
to the third quarter average for 2008 (rounded to the nearest
one-thousandth of 1% for initial calculations, but rounded to
the nearest one-tenth of 1% for the final application, as
required by law):
215.495 - 203.596 = 11.889
11.889 / 203.596 = 5.844%
COLA = 5.8%
Source: BLS data series for the CPI-W for 2007 and 2008.
Note: The reference base period for the CPI-W is 1982-1984 (i.e., the period when the index equaled
100).
What Else Is Affected Besides Social Security Benefits?
Social Security COLAs trigger increases in other programs. SSI benefits, veterans’
pension benefits, and railroad retirement “tier 1” benefits (equivalent to a Social Security
benefit) are increased by the same percentage as the Social Security COLA. Railroad
retirement “tier 2” benefits (equivalent to a private pension) are increased by an amount
equivalent to 32.5% of the Social Security COLA. Although COLAs under the CSRS and
the federal military retirement system are not triggered by the Social Security COLA,
these programs use the same measuring period and formula for computing their COLAs.
CRS-3
http://wikileaks.org/wiki/CRS-94-803
Their recipients also receive a 5.8% COLA in January 2009.1 The COLA also triggers
other changes in the Social Security program, including the following items indexed to
the increase in national average wages:
!
Taxable Earnings Base. The Social Security (or Old-Age, Survivors, and
Disability Insurance — OASDI) taxable earnings base (the maximum
amount of annual earnings subject to Social Security payroll taxes) will
increase to $106,800 in 2009 (from $102,000 in 2008).
!
Exempt Amounts Under the Social Security Earnings Test. The exempt
amount under the earnings test is the maximum amount of earnings
allowed before a Social Security recipient’s benefits are affected. In
2009, for persons who are below the full retirement age (FRA) and will
not reach the FRA during that year, the annual exempt amount is $14,160
(up from $13,560 in 2008). There is a withholding of $1 of benefits for
every $2 of earnings above this exempt amount. The earnings test no
longer applies beginning with the month a recipient reaches the FRA.
During the calendar year in which a recipient reaches the FRA, a higher
exempt amount applies for those months preceding the individual’s
attainment of the FRA. In 2009, for persons who will reach the FRA in
that year, the annual exempt amount is $37,680, or $3,140 per month (up
from $36,120, or $3,010 per month, in 2008). There is a withholding of
$1 of benefits for every $3 of earnings above this exempt amount.
Although not triggered by the COLA, other changes are tied to the increase in
national average wages. In 2009, the amount of earnings needed for a Social Security
“quarter-of-coverage” is $1,090 (up from $1,050 in 2008). The monthly substantial
gainful activity amount for the non-blind disabled is $980 (up from $940 in 2008), and
the amount for the blind disabled is $1,640 (up from $1,570 in 2008). The annual
coverage thresholds for domestic workers and election workers increase by $100 from
2008 levels, to $1,700 and $1,500, respectively.
Tables 2 and 3 show the history of increases in Social Security benefits and the
taxable earnings base. Table 4 shows the effect of the January 2009 COLA on monthly
benefit levels.
1
For retirees under the Federal Employees’ Retirement System (FERS), a different formula is
applied and the resulting increases may differ.
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Table 2. History of Social Security Benefit Increases
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Date Increase Was Paid
January 2009
January 2008
January 2007
January 2006
January 2005
January 2004
January 2003
January 2002
January 2001
January 2000
January 1999
January 1998
January 1997
January 1996
January 1995
January 1994
January 1993
January 1992
January 1991
January 1990
January 1989
January 1988
January 1987
January 1986
January 1985
January 1984
July 1982
July 1981
July 1980
July 1979
July 1978
July 1977
July 1976
July 1975b
April/July 1974c
October 1972
February 1971
February 1970
March 1968
February 1965
February 1959
October 1954
October 1952
October 1950
Amount of Increase
(shown as a percentage)
5.8
2.3
3.3
4.1
2.7
2.1
1.4
2.6
3.5
2.5a
1.3
2.1
2.9
2.6
2.8
2.6
3.0
3.7
5.4
4.7
4.0
4.2
1.3
3.1
3.5
3.5
7.4
11.2
14.3
9.9
6.5
5.9
6.4
8.0
11.0
20.0
10.0
15.0
13.0
7.0
7.0
13.0
12.5
77.0
Source: Social Security Administration.
a. Originally computed as 2.4%, the COLA payable in January 2000 was
corrected to 2.5% under P.L. 106-554.
b. Automatic COLAs began.
c. Increase came in two steps.
CRS-5
Table 3. Social Security and Medicare Hospital Insurance Taxable
Earnings Bases Since the Beginning of the Programs
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Year Effective
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994a
1993
1992
1991b
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1968-1971
1966-1967c
1959-1965
1955-1958
1951-1954
1937-1950
Taxable Earnings Base
OASDI
HI
$106,800
All earnings
102,000
All earnings
97,500
All earnings
94,200
All earnings
90,000
All earnings
87,900
All earnings
87,000
All earnings
84,900
All earnings
80,400
All earnings
76,200
All earnings
72,600
All earnings
68,400
All earnings
65,400
All earnings
62,700
All earnings
61,200
All earnings
60,600
All earnings
57,600
$135,000
55,500
130,200
53,400
125,000
51,300
51,300
48,000
48,000
45,000
45,000
43,800
43,800
42,000
42,000
39,600
39,600
37,800
37,800
35,700
35,700
32,400
32,400
29,700
29,700
25,900
25,900
22,900
22,900
17,700
17,700
16,500
16,500
15,300
15,300
14,100
14,100
13,200
13,200
10,800
10,800
9,000
9,000
7,800
7,800
6,600
6,600
4,800
—
4,200
—
3,600
—
3,000
—
Source: Social Security Administration.
a. The HI taxable earnings base was eliminated by the Omnibus Budget Reconciliation Act of
1993.
b. The HI taxable earnings base was raised to $125,000 as a revenue-raising measure in the
Omnibus Budget Reconciliation Act of 1990.
c. 1966 was the first year in which the HI tax was levied.
CRS-6
Table 4. Impact of January 2009 COLA on
Monthly Benefit Levels
Before
5.8% COLA
After
5.8% COLA
All retired workers
$1,090
$1,153
Aged couple, both receiving benefits
$1,773
$1,876
Widowed mother and two children
$2,268
$2,399
Aged widow(er) alone
$1,051
$1,112
All disabled workers
$1,006
$1,064
Disabled worker, spouse, and one or
more children
$1,695
$1,793
Individual
$637
$674
Couple
$956
$1,011
Average Social Security monthly benefit levels:
http://wikileaks.org/wiki/CRS-94-803
SSI federal monthly payment standard:
Source: Social Security Administration, October 16, 2008. As a result, their recipients similarly
will not likely receive a COLA in January 2010.
Current law retains the average CPI-W for the third quarter of 2008, as the reigning highest third
quarter average, as the baseline for comparison for a COLA in 2011. The Congressional Budget
Office (CBO) and the trustees of the Social Security trust funds have projected that there will not
be an increase in the average CPI-W for the third quarter of 2010 relative to the average CPI-W
for the third quarter of 2008, which would result in no COLA also for 2011. Both CBO and the
Social Security Administration (SSA) project that COLAs will resume in 2012.
This report is updated annually.
Congressional Research Service
Social Security: Cost-of-Living Adjustments
Contents
How the Social Security COLA Is Determined ............................................................................1
The January 2010 COLA ............................................................................................................1
Scenario In Which No COLA Is Payable .....................................................................................2
What Else Is Affected Besides Social Security Benefits? .............................................................2
Tables
Table 1. Computation of a Social Security COLA, January 2010 .................................................1
Table 2. History of Social Security Benefit Increases...................................................................4
Contacts
Author Contact Information ........................................................................................................5
Congressional Research Service
Social Security: Cost-of-Living Adjustments
How the Social Security COLA Is Determined
An automatic Social Security benefit increase reflects the rise in the cost of living over roughly a
one-year period. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW), updated monthly by the Bureau of Labor Statistics (BLS), is the measure used to compute the
change. The Social Security cost-of-living adjustment (COLA) is based on the percentage change
in the index from the highest third calendar quarter average CPI-W recorded (most often, from
the previous year) to the average CPI-W for the third calendar quarter of the current year. The
COLA becomes effective in December of the current year and is payable in January of the
following year. (Social Security payments always reflect the benefits due for the preceding
month.)
The January 2010 COLA
On October 15, 2009, BLS announced the September 2009 CPI-W figure, making it official that
there would be no January 2010 COLA. The release of the September 2009 index amount made
the comparison of the two July-September sets of CPI-W figures needed to compute the COLA
(one for 2008 and another for 2009) possible. Table 1 shows how a potential, if applicable,
January 2010 COLA was computed under procedures set forth in Section 215(i) of the Social
Security Act.
Table 1. Computation of a Social Security COLA, January 2010
CPI-W Index Points
July 2008
216.304
August 2008
215.247
September 2008
214.935
Average for Third Quarter of 2008 (rounded to the nearest one-thousandth of 1%):
215.495
July 2009
210.526
August 2009
211.156
September 2009
211.322
Average for Third Quarter of 2009 (rounded to the nearest one-thousandth of 1%):
211.001
Percentage increase or decrease from the third quarter average for 2008 to the third
quarter average for 2009 (rounded to the nearest one-thousandth of 1% for initial
calculations, but rounded to the nearest one-tenth of 1% for the final application, when
positive, as required by law):
Social Security cost-of-living adjustment (zero if the percentage increase is negative):
211.001 – 215.495 = -4.494
-4.494 / 215.495 = -2.085
-2.085%
0%
Source: BLS data series for the CPI-W for 2008 and 2009.
Note: The reference base period for the CPI-W is 1982-1984 (i.e., the period when the index equaled 100).
Congressional Research Service
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Social Security: Cost-of-Living Adjustments
Scenario In Which No COLA Is Payable
The Social Security Act specifies that a COLA is payable automatically if there is an increase in
the average CPI-W for the third quarter of the current year relative to the average CPI-W for the
third quarter of the previous year.1 Since 1975, when this provision became effective, a COLA
has been paid every year. However, it is possible to have one or more years in which no COLA is
payable. If the average CPI-W for the third quarter of the current year is equal to or less than the
average CPI-W for the third quarter of the previous year, no COLA is payable.
For example, when the average CPI-W for the third quarter of 2009 was reported to be less than
the average CPI-W for the third quarter of 2008 (211.011 and 215.495, respectively, as shown in
Table 1), the authority to pay an automatic COLA in January 2010 was not triggered.2
Because the average CPI-W for the third quarter of 2009 is less than the average CPI-W for the
third quarter of 2008, the third quarter of 2008 remains the “cost-of-living computation quarter”
(i.e., the benchmark) that is used to determine the COLA payable in January 2011.3 If the average
CPI-W for the third quarter of 2010 is less than 215.495 (even if it is greater than the average
CPI-W for the third quarter of 2009, 211.001), a COLA would not be payable in January 2011.
Social Security benefit amounts can not be reduced if the CPI-W decreases between the
measuring periods. If the performance of the CPI-W does not trigger a COLA, benefits remain
flat (prior to deductions for Medicare Part B and Part D premiums). However, in the absence of a
COLA, changes in Medicare premiums may result in a net reduction in the Social Security
payment amount. In addition, regardless of the effect of a COLA, beneficiaries could see a
decrease in their net payment amount from year to year as a result of changes in their Medicare
Part D selections and the associated premiums.4
What Else Is Affected Besides Social Security
Benefits?
Social Security COLAs trigger increases in other programs. SSI benefits, veterans’ pension
benefits, and railroad retirement “tier 1” benefits (equivalent to a Social Security benefit) are
increased by the same percentage as the Social Security COLA. Railroad retirement “tier 2”
benefits (equivalent to a private pension) are increased by an amount equivalent to 32.5% of the
1
Section 215(i)(1) of the Social Security Act.
The Congressional Budget Office (CBO) and the trustees for the Social Security trust funds both predict that no
COLA will be payable in 2011. For more information, see CBO, The Budget and Economic Outlook: An Update,
August 2009, at http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf, pp 54-55, and The Social
Security Administration (SSA), The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and
Survivors Insurance and the Disability Insurance Trust Funds, May 2009, at http://www.ssa.gov/OACT/TR/2009/
tr09.pdf, p. 107.
3
Section 215 (i) of the Social Security Act specifies that no COLA is payable in subsequent years until the average
CPI-W for the third quarter of the current year is greater than that for the last cost-of-living computation quarter.
4
For information on the interaction between the Social Security COLA and Medicare Part B premiums, see CRS
Report R40561, The Effect of No Social Security COLA on Medicare Part B Premiums, by Jim Hahn and Alison M.
Shelton.
2
Congressional Research Service
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Social Security: Cost-of-Living Adjustments
Social Security COLA. Although COLAs under the Civil Service Retirement System (CSRS) and
the federal military retirement system are not triggered by the Social Security COLA, these
programs use the same measuring period and formula for determining their COLAs. As a result,
their recipients also will likely not receive a COLA in January 2010.5
When a COLA is payable, other Social Security provisions are affected. The respective thresholds
for the taxable earnings base and the earnings test exempt amounts6 can only be increased when a
COLA is payable. Though changes to thresholds for each respective provision are based on the
percentage increase in national average wages (whereas the CPI-W reflects changes in prices),
they are linked to the payment of a COLA. If a COLA is payable, then these thresholds increase
by the percentage that the national wage index has increased. If no COLA is payable, these
thresholds may not be altered, even if the national wage index experiences positive growth.7 The
taxable earnings base and the earnings test exempt amounts will not be increased in 2010.
Although not linked to the COLA, other changes are tied to the increase in national average
wages. These provisions include the amount of earnings needed for a Social Security “quarter-ofcoverage,” the monthly substantial gainful activity amount for the non-blind disabled and blind
disabled, and the annual coverage thresholds for domestic workers and election workers. These
thresholds may be altered even if a COLA is not payable.
Table 2 shows the history of increases in Social Security benefits.
5
For retirees under the Federal Employees’ Retirement System (FERS), a different formula is applied and the resulting
increases may differ.
6
For more information on the interactions between the taxable earnings base and the earnings test exempt amounts
with the COLA, see SSA, October 2009, “Frequently Asked Questions About the 2010 Cost-of-Living Adjustment,” at
http://www.socialsecurity.gov/cola/2010/2010faqs.htm#q5.
7
Sections 230(a) and 203(f)(8), respectively, of the Social Security Act.
Congressional Research Service
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Social Security: Cost-of-Living Adjustments
Table 2. History of Social Security Benefit Increases
Date Increase Was Paid
Amount of Increase
(shown as a percentage)
January 2010
0.0
January 2009
5.8
January 2008
2.3
January 2007
3.3
January 2006
4.1
January 2005
2.7
January 2004
2.1
January 2003
1.4
January 2002
2.6
January 2001
3.5
January 2000
2.5a
January 1999
1.3
January 1998
2.1
January 1997
2.9
January 1996
2.6
January 1995
2.8
January 1994
2.6
January 1993
3.0
January 1992
3.7
January 1991
5.4
January 1990
4.7
January 1989
4.0
January 1988
4.2
January 1987
1.3
January 1986
3.1
January 1985
3.5
January 1984
3.5
July 1982
7.4
July 1981
11.2
July 1980
14.3
July 1979
9.9
July 1978
6.5
July 1977
5.9
July 1976
6.4
1975b
8.0
July
Congressional Research Service
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Social Security: Cost-of-Living Adjustments
Date Increase Was Paid
Amount of Increase
(shown as a percentage)
April/July 1974c
11.0
October 1972
20.0
February 1971
10.0
February 1970
15.0
March 1968
13.0
February 1965
7.0
February 1959
7.0
October 1954
13.0
October 1952
12.5
October 1950
77.0
Source: Social Security Administration.
a.
Originally computed as 2.4%, the COLA payable in January 2000 was corrected to 2.5% under P.L. 106-554.
b.
Automatic COLAs began.
c.
Increase came in two steps.
Author Contact Information
Gary Sidor
Information Research Specialist
gsidor@crs.loc.gov, 7-2588
Congressional Research Service
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