- The Washington Times - Monday, July 27, 2009

Federal retirees who have grown accustomed to cost-of-living adjustments each and every January are in for a rude awakening when they get their first benefit payment in 2010. So what’s likely to happen?

Nothing. That is, no increase at all. A no-cal COLA!

Monthly payments to the millions under Social Security, federal civil service or military retirement plans will be the same next year as they are right now. However, to add insult to injury, the actual after-deductions benefit for many federal civil service retirees and their survivors will drop. That’s because health insurance premiums for federal and postal retirees (along with those for workers still on the job) will be going up next year.

Those who don’t switch to lower-cost health premiums during the federal health/benefits open season in November and December will get smaller annuity payments in January. Their actual civil service benefit payment will not go down, but health premiums may take a bigger bite.

The reason for the totally no-cal COLA: Inflation. Actually, the lack of inflation.

Living costs, driven to a large extent by oil prices, have barely changed during the past few months. There have even been a couple of months when the cost of living, as measured by the Labor Department’s Consumer Price Index, has even gone down. Living costs are about 2.5 percent lower now than they were a year ago, according to government data.

A year without a COLA will surprise and anger many retirees who got an inflation-driven 5.8 percent COLA last January. That rise was triggered by the spike in oil prices last year during the period (the third quarter) when the retiree COLA is determined for the following year.

The prospect of a zero increase for retirees will be contrasted with their colleagues who are still working for Uncle Sam or are still on active duty in the military. Depending on what Congress and the White House do in the coming months, nonpostal federal workers are due a minimum increase of 2 percent in January, and that could go up to 3.4 percent if Congress decides to give them pay raise parity with the military. Any increase the civilian feds get will be even higher once locality pay differentials are figured in for people working in Washington-Baltimore, New York City, Houston, San Francisco and 28 other locality pay areas.

Pay raises and COLAs are completely different things and are determined by two different processes. In some years they have been roughly the same. In others they have been different.

Federal pay raises are linked — by a complex law and formula that has never been fully implemented — to changes in private-sector pay in major metro areas. Those changes, and the salaries they produce, are then compared to similar jobs (and salaries) paid in that area to federal government employees.

The formula was set up in the 1990s. It was supposed to produce a series of annual catch-up pay raises designed to close the so-called “pay gap” between government jobs and private-sector jobs.

President Clinton refused to follow the formula, which he said was flawed because it was simply compared salaries. He said other factors — like the value of fringe benefits such as retirement pay, health insurance, vacation time and number of holidays — should be included for a “total compensation” comparison.

Congress declined to adopt the total compensation concept. As a result, Mr. Clinton, followed by President Bush, proposed a series of much smaller pay raises that Congress sweetened slightly each year. As a result, federal unions say, government salaries tend to be at least 20 percent less than what civil servants could get doing the same job for a corporation or contractor.

President Obama this year proposed a 2 percent raise for white-collar federal workers and a 2.9 percent adjustment for members of the uniformed military. Congress has taken steps to boost the military pay raise to 3.4 percent. Federal unions are hoping to get the same percentage increase the military gets. We are months away from knowing the final amount.

Meantime, the inflation clock is ticking slowly, and even running backward, which does not bode well for retiree COLAs this year.

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