Diet COLAs for everybody?

Monday - 12/17/2012, 2:00am EST

Imagine you are the lookout on the Titanic. Although we know it's unsinkable, you are still on iceberg alert. You know they are out there. Turns out you are correct. Except for one thing: You've been looking in the wrong spot for the killer 'berg. Sorry about that.

Now, fast forward from April 1912 to December 2012. You are back in iceberg territory, Washington style. Political icebergs are dead ahead, and the ship is moving fast on a fixed course.

For more than a year, nervous federal and postal workers have worried that Congress and the White House will tamper with their retirement package. While that is a genuine concern, the minor threat many fixated on isn't the problem or the likely target.

Most people fixated on a long-pending proposal that would base benefits of future retirees on their highest five-year average salary. Currently, annuities are based on the high-three formula. While that proposal — which has been around for decades — would trim annuities somewhat, the bigger and more realistic threat to all retirees has been getting closer and closer. It is known as the "chained CPI." If adopted it could reduce future cost-of-living adjustments — for federal and military retirees and people who get Social Security — by 0.3 percent each year.

Leaders of federal and postal unions and other groups, such as the National Active and Retired Federal Employees (NARFE) Association, have long warned that the bigger threats to federal retirement benefits come from little-noticed (until now) plans to give feds vouchers to buy their health insurance and also from the chained CPI.

As we warned last week, using a different method to calculate living costs (i.e. the chained CPI) "would produce huge future savings in Social Security and Civil Service retirement outlays. Currently, the BLS determines the Consumer Price Index by measuring the cost of goods and services and translating it into a percentage that determines if retirees get January COLAs. Under the current plan ... the retirement benefits will rise 1.7 percent in January 2013."

But if the chained CPI goes into effect, the next COLA would be 1.4 percent. And any increase would be reduced by 0.3 percent each year in the future.

Late last week, NARFE warned, again, that Congressional-White House negotiators might settle on the chained CPI to reap billions of dollars in savings over the next decade. NARFE President Joseph Beaudoin said the changes "would mean a decrease in the annual adjustment each year, meaning less income for those already on a fixed income." He said each annual reduction "only gets compounded over time."

Significantly, in an editorial last Friday headlined "Liberals Unbalanced," The Washington Post chided Democrats who oppose any changes in entitlements and said they must consider changes, including the chained COLA.

The concern is that as Congress and the White House approach their self-imposed fiscal cliff/sequestration deadline, they will cobble together a deficit-reduction package that could well include vouchers for feds or the chained CPI.

We should know something soon. Meantime, stand by your life jacket.


NEARLY USELESS FACTOID

By Jack Moore

Ever wonder what 186-mph wind blown in someone's face looks like? Wonder no more. A Lithuanian photographer set up a high-powered wind machine to capture the effect on his subjects for a photo series with a title not fit to print on a "family website."

(Source: Slate)


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