When Zero is Better Than Minus

Tuesday - 5/19/2009, 4:00am EDT

Despite a small but steady increase in prices from January though April of this year, retired feds, military retirees and people who get Social Security benefits are still on track to get a zero cost of living adjustment in January, 2010.

Say what?

In January of this year, thanks to inflation driven by higher oil prices for part of 2008, the retirees received a 5.8 percent COLA. That was the biggest inflation-catch-up in years and many figured 2010 would be another COLA bonanza year. But living costs started dropping late last year to the point where the economy went from inflation to deflation. Living costs were down in each of the last five months of 2008.

COLAs for retirees are based on the rise in the Consumer Price Index-W from the third quarter of the current year (July, August, September 2009) over the third quarter of the previous year. That is July, August, September of 2008. Generally that trend is up. But not, as we see now, now.

The National Active and Retired Federal Employees Association, which keeps a close eye on the CPI, says that for the purpose of calculating the next COLA (which is due in January, 2010) the key CPI index is currently 3.5 percent LOWER than the third quarter CPI average for last year.

The bad news for retirees, who have grown accustomed to COLAs, is that unless inflation jumps dramatically between now and the end of September, there will NOT be any retiree COLA increase in 2010. That's not entirely bad because inflation hurts nearly everybody and especially retirees who are generally living on less than they were while working. But retired feds have it much better than most retired nonfeds. Many of those people don't have any company-backed retirement plan or, if they do, its benefits are fixed for life. They never get a cost of living adjustment.

The very, very good news for federal retirees in times of zero inflation, or deflation, is that their monthly benefits will NOT be reduced. Benefits for retired feds, military retirees and people who get Social Security go up to keep pace with inflation but they are not reduced because of deflation.

For more on the inflation vs. deflation issue, and to see how the CPI is figured, click here.

For more on the retiree COLA checkout www.narfe.org.

Federal Pay Raise

The pay raise due white collar (non-postal) federal workers in January of 2010 is not impacted by rising, or falling, prices. The pay raise is a budgetary/political decision made by the White House and Congress. It does not, as many incorrectly believe, have anything to do with the cost of living. Members of Congress, to soothe voters, call their raises "COLAs" but they are in fact often higher than the rise in living costs. Next year, for example, civilian and military feds will get a raise. The White House wanted a lower amount but Congress is now pushing for a minimum 2.9 percent increase.

NSPS Under The Microscope

The love-it-hate-it National Security Personnel System is going to get a top-to-bottom review from a blue-ribbon panel. Office of Personnel Management Director John Berry previewed the review last week when he appeared on our Your Turn with Mike Causey radio show.

The panel, a task group of the Defense Business Board, includes Rudy deLeon, from the Center for American Progress, Michael Bayer of the Defense Business Board and American University professor Robert Tobias. He's OPM's rep on the board and he was the long-time president of the National Treasury Employees Union. To listen to the full Berry interview, with his views on Long Term Care insurance, the future of federal pay, domestic partner legislation and the NSPS review, click here.

Nearly Useless Factoid
by Suzanne Kubota

While some chocolates have a surprise inside, at least one has something interesting on the wrapper. The GraphicDesignBlog notes that Bern, Switzerland is the home of Toblerone chocolate and has the bear as its symbol - which explains the oft overlooked bear in the logo.

To reach me: mcausey@federalnewsradio.com