Federal retirees and Social Security recipients are about to receive the largest cost-of-living adjustment (COLA) increase in over four decades.
The Social Security Administration announced on October 13 that the COLA will increase by 8.7% in 2023. However, that amount will not be added to the checks of all federal retirees. Starting in January, those enrolled in the Federal Employee Retirement System (FERS) will receive a 7.7% COLA.
Given the high rates of inflation and rising consumer prices this year, the large COLA announcement for 2023 comes as no surprise, according to Ken Thomas, national president of the National Active and Retired Federal Employees (NARFE) Association, in an Oct. 13 statement.
“However, rising healthcare costs and disparities in the treatment of specific federal annuitants may reduce the value of this adjustment,” Thomas said. “Seniors spend more on health care than any other demographic.”
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Federal employees and retirees enrolled in the Federal Employee Health Benefits Program (FEHBP) will pay 8.7% more in healthcare premiums in 2023, on average.
COLAs are designed to keep federal retirees and Social Security recipients up to date on inflation. The Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, is used to calculate them.
The exact COLA amount will vary depending on the system under which a federal employee retires. Civil Service Retirement System (CSRS) retirees receive the full COLA, whereas FERS retirees typically receive less. The amount of loss depends on the size of the COLA itself:
FERS retirees will receive the full COLA if the CSRS COLA increases by less than 2%.
FERS retirees will receive a 2% COLA if the CSRS COLA increases between 2% and 3%.
FERS retirees will receive 1% less than the full COLA if the CSRS COLA increases by more than 3%.
Nonetheless, next year’s COLA is the highest increase since 1982, making 2022’s relatively large COLA of 5.9% appear insignificant in comparison. Prior to that, the most recent significant COLA for civil service retirees was 5.8% in 2009. The chart below depicts the COLAs for CSRS and FERS retirees since 2009. COLA data can be found further back on the SSA’s website.
“This inequitable policy, enacted with the creation of FERS in the 1980s, fails to fully protect the earned value of FERS annuities, which decrease in value year after year — exactly what COLAs are intended to prevent,” Thomas said.
Sen. Alex Padilla (D-Calif.) introduced the Equal COLA Act in May to address the disparity in COLAs for FERS and CSRS retirees. Last year, Rep. Gerry Connolly (D-VA) introduced a companion bill in the House. The bill would provide FERS retirees with the full COLA amount. Connolly has introduced similar legislation in the past, but it has never passed through Congress.
Other lawmakers have proposed completely overhauling the COLA system. The Fair COLA for Seniors Act, introduced by Rep. John Garamendi (D-Calif.), would base future COLAs on the Consumer Price Index-E (CPI-E) rather than the CPI-W. Both indices track consumer costs, but the CPI-E gives more weight to healthcare costs, which could result in a higher COLA for retirees.
