Cost-of-Living Adjustments for Federal Civil Service Annuities

Katelin P. Isaacs
Analyst in Income Security

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 2010, the average monthly CPI for the third quarter of 2008 remains the base year for determining the current 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.

From the third quarter of 2008 to the third quarter of 2011, the CPI-W increased by 3.6%. Therefore, the CSRS COLA beginning in January 2012 is 3.6%. The January 2012 FERS COLA is 2.6%.


Date of Report: January 3, 2012
Number of Pages: 7
Order Number: 94-834
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