COLA: FICKLE FORMULA

By Stephen Barr, October 19,2006, Source: Washington Post
Forwarded by YNCS Don Harribine, USN (Ret)

Federal retirees, many on fixed incomes, look forward to the annual COLA announcement. But whether the cost-of-living adjustments keep pace with health-care costs, property taxes and rising prices is not an easy calculation.

Larry Daks, a retired Foreign Service officer in Northern Virginia, said his pension increase should help him cope with rising consumer prices, assuming his health-care costs remain reasonable. “I like to see a COLA every year,” Daks said, adding that it reinforced “a sense that the government has sort of a contract with us and is trying to do something for us every year.”

But Gerald Cornell of Burtonsville, who worked for the Internal Revenue Service and served in the military, said his health-insurance company has scheduled a sharp jump in premiums for next year that will drain his COLA dry. “The average person is going backward,” he said.

The announcement of a Social Security COLA increase triggered adjustments for government retirees, raising the average annuity in one of the largest pension programs, the Civil Service Retirement System, by $80 a month.

Government employees are covered by a number of retirement systems. To pass along COLAs, the systems use salary-based formulas to determine annuities and rules, which have been modified by Congress in some years. Federal employees covered by older retirement programs typically receive a pension considered generous by private-sector standards, while employees hired after 1984 receive a smaller pension and Social Security income, and may enroll in a 401(k)-type savings program.

For 2007, retirees covered by the Civil Service Retirement System, regular military retirees and many Foreign Service officers will receive a 3.3 percent COLA. People who retired under the newer Federal Employees Retirement System and are 62 or older will receive a 2.3 percent COLA. The smaller COLA also will go to some military retirees and some Foreign Service officers.

The average annuity under the old Civil Service Retirement System will increase to $2,532 from $2,452 per month, the Office of Personnel Management said. The average monthly retirement check for FERS retirees will rise to $916 from $896 next year, the OPM said. There are about 2.4 million federal retirees, with about 330,000 retirees and survivors in the District, Virginia and Maryland.

The average monthly retirement payment for the military will be $1,705 next year, though average monthly retiree military pay next year will be higher in Virginia ($2,277) and Maryland ($1,859), according to Pentagon data. Nationwide, there are about 1.94 million military retirees, with 189,168 in the District, Virginia and Maryland.

State Department officials said computations were not available on COLAs for the Foreign Service but estimated that monthly payments to about 6,100 retired officers and surviving spouses in the Washington area would average $4,384 next year. Nationwide, there are 14,328 retired Foreign Service officers. Many federal retirees continue to work after leaving the government, and some move from the Washington area in a bid to stretch their retirement income.

Virginia A. Broadbent moved to Orange, Va., from Alexandria after retiring from the Agriculture Department in 1994. “Quite clearly I could obtain a better house at a lower price here at the time I bought,” she said. “I would be living in a hovel if I was living in the D.C. area.” But she is worried that property tax rates in Orange will increase this year, cutting into her CSRS pension. “I have become more cautious and concerned about money. I would love to see a COLA that kept pace with the cost of living in a more realistic sense. A COLA of “4 to 5 percent would seem nicer to me,” she said.

Kleeman never stopped working. Her government career included about 20 years at the Government Accountability Office, a congressional agency, and she left federal service in 1994 to join George Washington University as a distinguished executive in residence, teaching and helping students plan their careers. While in government, she was covered by CSRS and FERS, which give her a mixed COLA. Her retirement benefits are “certainly generous,” she said, but noted that many federal employees will need to invest wisely in the Thrift Savings Plan, their 401(k)-type program, to achieve a comfortable retirement.

“I don't think I will get rich on the 3.3,” she quipped, adding, on a more somber note, “very few people now in government service are going to be able to leave a large inheritance.”

Stephen Barr's e-mail address isbarrs@washpost.com.
© 2006 The Washington Post Company


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