Fed groups get in front of COLA calculation debate

Thursday - 10/10/2013, 5:57am EDT

Jason Miller on the Federal Drive with Tom Temin and Emily Kopp/

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Any discussion of cuts to federal employee, retiree and veterans benefits out of the conversations to reopen the government, increase the debt ceiling or reduce the deficit should stop before they start, according to a variety of groups representing these constituents.

The National Active and Retired Federal Employees Association, the Military Officers Association of America, the American Foreign Service Association and others say White House and Congressional leaders need to come with better options than moving to the chained Consumer Price Index (CPI) formula to determine future cost of living adjustments (COLA).

The White House and congressional leaders have floated the idea of using the chained CPI formula instead of the CPI-W approach, which has been in use since 1996.

The groups representing current and retired federal employees, veterans and others believe this formula would hurt seniors or people with disabilities at a time they can least afford a reduction in payments.

NARFE uses 44 shoeboxes filled with coupons to demonstrate how much federal retirees would lose under chained CPI.

Elaine Hughes, NARFE's national secretary, led a rally Wednesday on Capitol Hill where association members sent dozens of boxes of coupons in reaction to the suggestion by some members of Congress that moving to the chained CPI would mean seniors and retirees would just have to clip a few more coupons to make up the difference.

"Under the chained CPI, the average federal retiree would lose $48,000 over 25 years. Do you know how long it takes to clip $48,000 worth of coupons? Do you know how many shoeboxes it takes to store $48,000 worth of coupons? Well, you are looking at it right here and now," she said pointing to 44 shoe boxes of coupons. "For seniors who rely on the average social security benefit of $15,000 a year, the chained CPI would cost them $23,000. The chained CPI would, on average, rob retired military members of $42,000."

"Insidious, radical change"

The chained CPI is the idea that future cost of living adjustments will be based on the formula that determines how much the price of consumer goods and services are increasing.

The idea is to chain the CPI to all COLAs for Social Security, veterans, federal employee retirement and other benefits.

The current formula, CPI-W, is based on the inflation felt by urban wage earners and clerical workers.

NARFE, MOAA and others say under the chained CPI concept, benefits would be reduced as retirees and beneficiaries get older and when they need the money the most.

For example, a disabled veteran receiving benefits at 30-years-old would lose $1,400 a year by age 45. By age 55, they'd lose $2,300 a year and by 65-years-old, the veteran would see a decrease of $3,200 a year.

"In our estimation, chained CPI is an insidious radical change that should be called for what it really is: It's a cut. It's a cut in the budget," said Phil Odom, a retired Air Force colonel and the deputy director for government relations for MOAA. "Retired veterans who are disabled as a result of service to our nation would be severely impacted by the chained CPI. It would clobber military retirees and veterans as well by reducing the retired pay earned by arduous service by members who do retire, their VA disability pay acquired by wounds and injury in combat and their Social Security annuity. So in our estimation, it's a triple whammy on the military."

And for those federal employees who didn't serve in the military, it's a double whammy for those under the Federal Employee Retirement System (FERS) because both their pensions and Social Security benefits would be impacted. For those under Civil Service Retirement System (CSRS), it's only a single whammy, but all employees would feel the pinch over time, these groups say.

Expert recommendations

There are others who believe the chained CPI makes sense.

The Simpson-Bowles deficit commission, the Domenici-Rivlin Task Force and the Gang of Six in the Senate supported changing how the government calculates COLAs.

And of course, the White House proposed the change in its 2014 budget, so that carries a lot of weight as well.

The Congressional Budget Office and others say moving to a chained CPI formula could save the government as much as $400 billion over the next decade.

And it's that reason why NARFE, MOAA and others held the rally on Capitol Hill as the government shutdown moves closer to a third week. Jessica Klement, NARFE's legislative director, said the potential savings would be too good to pass up during negotiations that will eventually happen around a host of spending issues.

Gary Roundtree, a retired Postal Service employee and a retired Marine, and now the first vice president and legislative director for NARFE's Maryland chapter, said the rally was important to raise awareness and their concern over the idea of the chained CPI.

Obama has heard the concerns

Rep. Janice Schakowsky (D-Ill.) said the White House is aware of the concerns around using the chained CPI formula.

"I actually have had a conversation directly with the president about it, and I'm hopeful that at the end of the day that will not be part of his offering on the table," she said. "If there's going to be a conversation about Social Security, it should be completely separate from this budget negotiation whereever the suggestion comes from."

Schakowsky said there's a growing number of people in Congress and those representing federal employees, veterans and seniors who do not support the chained CPI approach.

NARFE, MOAA and others say there are better alternatives to the chained CPI approach.

Klement said the groups realize the current approach, CPI-W isn't accurate.

"A group alternative would be the CPI-E, which actually measures the buying habits of those over the age of 62 in this country," she said. "The current formula, CPI- W, doesn't even accurately reflect how seniors' spend their money, and the chained CPI only exacerbates that problem."

Social Security solution

Klement said there is widespread support in both houses of Congress, and some lawmakers even have introduced resolutions to use the CPI-E.

But, she said, because the CPI-E most likely would increase the COLAs annually, it's not a big part of the conversation.

Some say the CPI-E is flawed too. Experts say it's only a subset of the CPI-U, which measure inflation for urban consumers, and there are questions about whether the CPI-E accurately measures rising health care costs.

Sen. Bernie Sanders (I-Vt.) said another option to ensure Social Security's future is not to use the chained CPI, but to raise the cap on the amount any one person pays in taxes to the fund.

"What we know if the solution to the Social Security issue is you scrap the cap. That's what you do," Sanders said. "What you do is what Barack Obama proposed when he first ran for president in the year 2008. Right now, all of you know, somebody makes $100 million a year and somebody makes $113,000 a year, both of those people are contributing the same amount in terms of Social Security taxes. You lift that cap, and you could do what Obama suggested in 2008, and start at $250,000. You do that and Social Security is safe for the next 50-to-75 years."

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