Cashing In On The COLA

What happens when government retirees get bigger raises than working feds?

What happens when the January cost of living adjustment (COLA) for retired civil servants exceeds the percentage of the pay raise due government workers in January?

Inquiring minds want to know…

Here’s the deal: The COLA for most federal retirees next January will be 5.8 percent. That’s the biggest inflation-adjustment since 1982.

But the pay raise for white collar feds still on the job will be 3.9 percent, plus whatever extra increase they get when city-by-city locality raises are factored in. The actual amount of the January 2009 pay raise won’t be set for a few more weeks, but it is unlikely it will be anything close to the 5.8 percent due retirees.

What happens when the COLA exceeds the pay raise amount is this: Lots of people who are still working figure they will pull the plug and retire within the next month or so and get the COLA. It’s a great plan. Brilliant, but for one flaw: It doesn’t work that way. Can’t be done. That train has left the station. You missed the boat, etc, etc.

Reason: Retiree COLAs are for retirees. Pay raises are for those still on the job. The COLA is for people who were actually retired, as opposed to working, during the period when the inflation-countdown took place. You can’t retire at the last minute and get the full COLA. Or even most of it. The COLA is pro-rated based on the date when you retire. That’s the law.

Here, thanks to the National Active and Retired Federal Employees, is the pro-rating chart. It includes the month your annuity began, and the COLA percentage for retirees under the old Civil Service Retirement System, and for those under the newer Federal Employees Retirement System.

FECA Benefits

NARFE says that annual COLAs paid to employees forced out of the labor market by a work-related injury or illness (FECA) are not computed or paid on the same basis as COLAs for regular federal retirees. Their increases are based on the rise in the Consumer Price Index from the current third quarter (July, August, September) over the third quarter of last year.

FECA benefits are based in the rise in the CPI (which measures inflation) during the calendar year. Both are 12-month calculations, but on a different schedule. The final amount of the raise for FECA recipients won’t be determined until the December CPI figures are in. As of now the FECA raise, which is due in March, stands at 4.5 percent.

Curious about how the CPI works? Got about 20 minutes to fry your brain in the attempt? If so, click here and go to the CPI link in the column.

Nearly Useless Factoid

From MentalFloss.com, we are reminded that Snickers (candy bar) was the sponsor of the Howdy Doody Show from 1949-1952.

To reach me: mcausey@federalnewsradio.com

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