Affectionately known as the Diet COLA, FERS retirees get a reduced Cost Of Living Adjustment when consumer prices increase by 3% or more. This means CSRS annuitants will receive the full 8.7% COLA for 2023 while FERS annuitants will receive a bump of only 7.7%. It doesn’t seem fair, does it?
Diet COLA Background
Before 1962, federal law did not provide any automatic COLAs for retirees covered by the Civil Service Retirement System (CSRS). Over the following years, various laws were enacted to determine how COLAs would be calculated for CSRS annuitants. When the Federal Employees Retirement System (FERS) was established during the President Ronald Reagan Administration, it was determined that COLA increases on FERS annuities would be calculated differently.
“Back then, it was decided a lower COLA for FERS participants was justified because they benefit from the Thrift Savings Plan (TSP), including an agency match, plus their annuity and Social Security retirement income.”
The FERS Diet COLA Formula
FERS COLAs are capped at 2% when consumer prices increase between 2% and 3%. They are reduced by 1% when consumer prices increase by 3% or more. This has been the policy since the creation of FERS in 1986.
Back then, it was decided a lower COLA for FERS participants was justified because they benefit from the Thrift Savings Plan (TSP), including an agency match, plus their annuity and Social Security retirement income. Experts point out that the lower COLA will result in an erosion of FERS annuity purchasing power as more people retire under FERS.
The Equal COLA Act
In 2022, legislation introduced to Congress proposes to correct the inequality caused by the FERS Diet COLA. If passed by the House and Senate, the Equal COLA Act will provide FERS retirees with the same full COLAs CSRS annuitants and Social Security beneficiaries receive. Without this change to the current system, FERS retirees will continue to see their annuities decrease in value year after year after year.
COLA Age Restriction For FERS Annuitants
Another rule that doesn’t seem fair — CSRS or CSRS Offset retirees receive a COLA bump to their annuity regardless of their age. But those retired under FERS don’t receive COLAs until they turn age 62. The only exceptions are for those who retired on disability or under the special retirement provisions for law enforcement officers, firefighters or air traffic controllers. It’s also important to note that survivor beneficiaries under FERS and CSRS receive COLAs no matter what their age.
Right now, the majority of current federal retirees are covered under CSRS. However, in the coming years more and more federal workers will be retiring under FERS and feeling the pinch of the Diet COLA as inflation rises.
