The report was done in the context of pending bills known as the “Equal COLA Act” that have been introduced in both the House and Senate (HR-491 and S-624). Image: Andrey_Popov/Shutterstock.com
By: FEDweek Staff
The provision of federal retirement law requiring that cost-of-living adjustments for FERS employees be lower than those for CSRS employees when inflation is above 2 percent was part of a legislative compromise of the time and differences of opinion about it still remain, says a report for Congress.
The report by the Congressional Research Service was done in the context of pending bills known as the “Equal COLA Act” that have been introduced in both the House and Senate (HR-491 and S-624). Similar bills have been offered for many years, and “At this time, no version of the Equal COLA Act has been reported out of committee,” it says.
The bills would provide to FERS retirees the same COLA provided to CSRS retirees, in contrast to the current requirement that FERS adjustments are capped at 2 percent if the indicated figure is between 2 percent and 3 percent, and are reduced by 1 percentage point if that figure is above 3 percent.
When the law creating FERS was being drafted in the early 1980s, it says, that provision “was viewed by some as a legislative compromise aimed at cost concerns in the creation of FERS” and “as part of the bigger retirement package, which included Social Security and TSP.”
It said that compromise involved competing pressures from the then-Reagan administration—which for example wanted to increase the retirement eligibility age and base new annuities on the average of the retiree’s highest five consecutive salary years rather than three—and federal unions, which wanted to provide FERS retirees with the fully inflation indexed COLAs provided under the CSRS system. It quotes congressional sponsors of the time as saying the administration “exhibited statesmanship” and the unions “swallowed hard” in accepting the package as a whole.
Says the report, “Arguments in favor of the Equal COLA Act portray the bill as addressing the perceived unfairness of differences in COLAs across federal retirement systems (i.e., a lower COLA for FERS in comparison with CSRS), particularly in times of rapidly increasing inflation. Whether the current COLA provides adequate inflation protection for FERS retirees may present a question for policymakers.”
“Yet the deliberation surrounding the creation of FERS indicates that some policymakers suggested the capped FERS COLA would be sufficient for retirees in conjunction with Social Security and TSP benefits,” it says.
“Arguments against the bill include concerns with the additional costs of the proposal, which would apply to all FERS retirees and their survivors,” it says. They now number 1.1 million and 100,000, respectively, but the potential cost is unknown because no analysis has been done by the Congressional Budget Office, it adds.
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