Cost-of-Living Adjustments for Federal Civil
Service Annuities
Katelin P. Isaacs
Analyst in Income Security
October 15, 2010
Congressional Research Service
7-5700
www.crs.gov
94-834
CRS Report for Congress
P
repared for Members and Committees of Congress
Cost-of-Living Adjustments for Federal Civil Service Annuities
Summary
Cost-of-living adjustments (COLAs) for the Civil Service Retirement System (CSRS) and the
Federal Employees Retirement System (FERS) are based on the rate of inflation as measured by
the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). COLAs for
both CSRS and FERS are determined by the average monthly CPI-W during the third quarter
(July to September) of the current calendar year and the third quarter of the base year, which is
the last previous year in which a COLA was applied. Because the price level fell between the
third quarter of 2008 and the third quarter of 2009, the average monthly CPI for the third quarter
of 2008 remains the base year for determining the next COLA. The “effective date” for COLAs is
December, but they first appear in the benefit checks issued during the following January.
All CSRS retirees and survivors receive COLAs. Under FERS, however, non-disabled retirees
under the age of 62 do not receive COLAs. Survivors and disabled retirees are eligible for
COLAs under FERS regardless of age. CSRS pays a COLA that is equal to the percentage change
in the CPI-W during the measurement period, but COLAs under FERS are limited if the rate of
inflation is greater than 2.0%. If the rate of inflation during the measurement period is between
2.0% and 3.0%, the COLA under FERS is 2.0%. If inflation is greater than 3.0%, then the COLA
for FERS benefits is equal to the CPI-W minus one percentage point.
Congress passed the first law requiring automatic COLAs for federal civil service retirement
benefits in 1962, and it has adjusted either the formula by which they are calculated or the date on
which they take effect more than a dozen times since then.
If consumer prices as measured by the CPI-W do not increase from the third quarter of the base
year to the third quarter of the current calendar year, there is no COLA for annuities paid under
CSRS or FERS. From the third quarter of 2008 to the third quarter of 2010, the CPI-W fell by
0.6%. Therefore, there will be no COLA under either CSRS or FERS in January 2011.
Congressional Research Service
Cost-of-Living Adjustments for Federal Civil Service Annuities
Contents
COLA Formulas and Amounts .................................................................................................... 1
History of Legislation Affecting COLAs for Civil Service Annuities ........................................... 2
Tables
Table 1. COLAs in Civil Service Retirement Benefits.................................................................. 3
Contacts
Author Contact Information ........................................................................................................ 4
Acknowledgments ...................................................................................................................... 4
Congressional Research Service
Cost-of-Living Adjustments for Federal Civil Service Annuities
COLA Formulas and Amounts
Only federal employees hired before 1984 participate in the Civil Service Retirement System
(CSRS). The CSRS is closed to new entrants and will expire with the death of the last CSRS
annuitant sometime around the year 2075. Civilian federal employees who were hired in 1984 or
later participate in the Federal Employees Retirement System (FERS), as do employees who
voluntarily switched from CSRS to FERS during “open seasons” that were held in 1987 and
1998. The FERS program began operating on January 1, 1987.
Cost-of-Living Adjustments (COLAs) for CSRS annuities are based on the average monthly
percentage change in the CPI-W in the third quarter (July to September) of the current calendar
year compared to the third quarter of the base year, which is the year in which the last COLA was
applied. Because the price level fell between the third quarter of 2008 and the third quarter of
2009, the average monthly CPI for the third quarter of 2008 remains the base on which the COLA
is determined for 2011.1 Adjustments are effective on the first day of the month preceding the
month in which they are first paid. For example, the most recent CSRS COLA of 5.8% was
effective December 1, 2008, and was first applied to benefits paid in January 2009. It was equal
to the average monthly percentage change in the CPI-W between the third quarter of calendar
year 2007 and the third quarter of 2008.
COLAs for benefits paid under FERS also are based on the percentage change in the CPI-W from
third quarter to third quarter, but payment of COLAs under FERS is limited according the
eligibility category of the beneficiary and the rate of inflation. COLAs are not paid to non-
disabled FERS retirees as long as they are under the age of 62. COLAs are paid to survivors and
disabled FERS retirees of any age after the first year of disability. All COLAs paid under FERS
are limited if the rate of inflation exceeds 2.0%, according to the following formula:
Increase in CPI-W
Increase (COLA) in FERS Benefits
Under 2.0%
Same as CPI-W increase
2.0% to 3.0%
2.0%
More than 3.0%
Increase in CPI-W minus 1 percentage point
If consumer prices as measured by the CPI-W do not increase between the third quarter of the
base year and the third quarter of the current calendar year, there is no COLA for annuities paid
under CSRS or FERS. From the third quarter of 2008 (the last year in which a COLA was
applied) to the third quarter of 2010, the CPI-W fell by 0.6%. Therefore, there will be no COLA
under either CSRS or FERS in January 2011.
1 Between 1962 (when Congress passed the first law enacting automatic COLAs for federal civil service retirement
benefits) and 2009, this base year—the year in which the last adjustment occurred—was the previous year. Because the
CPI-W decreased from the third quarter of 2008 to the third quarter of 2009, however, the base year for determining the
COLA that would be effective as of December 2010 (and paid out in 2011) remains 2008. See 5 U.S.C. § 8340 and 5
U.S.C. § 8462.
Congressional Research Service
1
Cost-of-Living Adjustments for Federal Civil Service Annuities
History of Legislation Affecting COLAs for Civil
Service Annuities
P.L. 87-793 (enacted in 1962) was the first law that provided for automatic adjustments in civil
service retirement and disability benefits whenever the CPI in the current year exceeded the CPI
in the base year (the year in which the last adjustment occurred) by 3.0% or more. In 1965, this
was changed to require an adjustment in benefits whenever the CPI for a given month was at least
3.0% higher than in the month when the last adjustment was made, and remained at that level or
higher for three consecutive months.
P.L. 91-93 (enacted in 1969) added one percentage to COLAs in addition to the percentage
change in the CPI in order to offset the erosion of benefits that had occurred as a result of the time
lag in the adjustment formula. (P.L. 91-179 did the same for COLAs paid to military retirees.)
P.L. 94-440 (enacted in October 1976) repealed the one percentage point addition to COLAs. In
addition, this law provided for automatic semi-annual adjustments in benefits based on the change
in the CPI from June to December (effective the following March 1) and December to June
(effective the following September 1).
P.L. 97-35 (Omnibus Budget Reconciliation Act of 1981) replaced semi-annual COLAs with
annual COLAs based on the December-to-December change in the CPI, payable in March of the
following year.
P.L. 97-253 (Omnibus Budget Reconciliation Act of 1982) delayed the implementation of COLAs
by one month in FY1983, FY1984, and FY1985. The FY1983 COLA was effective April 1 rather
than March 1. The FY1984 COLA was scheduled for May 1 and the FY1985 COLA was
scheduled for June 1. This law also mandated that non-disabled retirees under the age of 62
would receive 50% of the projected CPI plus the full difference in the actual CPI over these
projections. The law specified that the projected CPI was 6.6% for 1983, 7.2% for 1984, and
6.6% for 1985. This provision was repealed by the supplemental appropriations law that was
passed in August 1984. COLAs for January 1985 and thereafter were to be the full amount for all
retirees.
P.L. 97-253 limited COLAs in certain cases. Under the restriction, an annuity could not be
increased by a COLA to an amount that exceeded the greater of the maximum pay for a GS-15
federal employee or the final pay of the employee (or high-3 average pay, if greater), increased by
the average annual percentage change (compounded) in rates of pay of the General Schedule for
the period beginning on the retiree’s annuity starting date and ending on the effective date of the
adjustment.
P.L. 98-270 (Omnibus Budget Reconciliation Act of 1983, enacted April 1984) delayed the COLA
scheduled for May 1984 until December (payable in January 1985). Thereafter, all COLAs were
to be effective in December and payable in January and were to be based on the change in the
average monthly CPI-W from third-quarter to third-quarter. This formula and schedule are the
same as those used to calculate COLAs in the Social Security program, as required by P.L. 98-21
(Social Security Amendments of 1983).
P.L. 98-369 (Deficit Reduction Act of 1984) specified that civilian and military retirement
COLAs are to be paid in checks issued on the first business day of the month following the month
Congressional Research Service
2
Cost-of-Living Adjustments for Federal Civil Service Annuities
in which they are effective. (COLAs that are effective in December are to be paid in checks
issued in January.)
P.L. 99-177 (Balanced Budget and Emergency Deficit Control Act of 1981 [Gramm-Rudman-
Hollings]). This law suspended all civil service retirement COLAs for FY1986 and for all
subsequent years in which the specified deficit reduction targets for the year would not otherwise
be met.
P.L. 99-509 (Omnibus Budget Reconciliation Act of 1986). This law reinstated COLAs for
programs in which they were subject to suspension under P.L. 99-177 for FY1987-FY1991.
P.L. 100-119 (Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987). This
law permanently exempted the programs subject to suspension of COLAs under P.L. 99-177 from
the suspensions required by that law.
P.L. 103-66 (Omnibus Budget Reconciliation Act of 1993). This law postponed the effective date
of COLAs from December to March for FY1994-FY1996. The CPI measurement period was not
changed.
Table 1. COLAs in Civil Service Retirement Benefits
CSRS Benefit
FERS Benefit
CPI Increase During COLA
Effective Datea
Increase
Increase
Measurement Period
December 1965
6.1%
—
4.6%
January 1967
3.9
—
3.9
May 1968
3.9
—
3.9
March 1969
3.9
—
3.9
November 1969
5.0
—
4.0
August 1970
5.6
—
4.6
June 1971
4.5
—
3.5
July 1972
4.8
—
3.8
July 1973
6.1
—
5.1
January 1974
5.5
—
4.5
July 1974
6.3
—
5.3
January 1975
7.3
—
6.3
August 1975
5.1
—
4.1
March 1976
5.4
—
4.4
March 1977
4.8
—
4.8
September 1977
4.3
—
4.3
March 1978
2.4
—
2.4
September 1978
4.9
—
4.9
March 1979
3.9
—
3.9
September 1979
6.9
—
6.9
March 1980
6.0
—
6.0
September 1980
7.7
—
7.7
March 1981
4.4
—
4.4
March 1982
8.7
—
8.7
April 1983
3.9
—
3.9
December 1984
3.5
—
3.5
Congressional Research Service
3
Cost-of-Living Adjustments for Federal Civil Service Annuities
CSRS Benefit
FERS Benefit
CPI Increase During COLA
Effective Datea
Increase
Increase
Measurement Period
December 1985
0.0
—
3.1
December 1986
1.3
—
1.3
December 1987
4.2
—
4.2
December 1988
4.0
3.0
4.0
December 1989
4.7
3.7
4.7
December 1990
5.4
4.4
5.4
December 1991
3.7
2.7
3.7
December 1992
3.0
2.0
3.0
March 1994
2.6
2.0
2.6
March 1995
2.8
2.0
2.8
March 1996
2.6
2.0
2.6
December 1996
2.9
2.0
2.9
December 1997
2.1
2.0
2.1
December 1998
1.3
1.3
1.3
December 1999
2.4
2.0
2.4
December 2000
3.5
2.5
3.5
December 2001
2.6
2.0
2.6
December 2002
1.4
1.4
1.4
December 2003
2.1
2.0
2.1
December 2004
2.7
2.0
2.7
December 2005
4.1
3.1
4.1
December 2006
3.3
2.3
3.3
December 2007
2.3
2.0
2.3
December 2008
5.8
4.8
5.8
December 2009
0.0
0.0
-2.1
December 2010
0.0
0.0
-0.6
Source: The Congressional Research Service.
Note: Includes pensions for Members of Congress.
a. Benefit increases are actually paid in checks issued the first of the following month.
Author Contact Information
Katelin P. Isaacs
Analyst in Income Security
kisaacs@crs.loc.gov, 7-7355
Acknowledgments
This report was originally prepared by former CRS Specialist Patrick Purcell. Please direct any inquiries to
the listed author.
Congressional Research Service
4