Will You Receive A COLA Next Year

By November 9, 2017Benefits, Retirement
COLA retirement eligibility - how to calculate cola - will you receive cola next year

COLA Retirement Eligibility Guide

Don’t confuse your “Annuity Start Date” with your “Date of Final Separation” that you list in block 2, Section B on your SF-2801 CSRS or the SF-3107 FERS Retirement Application Forms. I attended two retirement seminars the last three years I was employed by the Federal Aviation Administration. I recall being advised that if you retired December 31 instead of January 1 you would get the entire COLA the following year. Unfortunately, I assumed that my retirement annuity start date was the date that I entered on my retirement application. Also, as a CSRS employee voluntarily retiring, I discovered after leaving that I would have had to retire the last day of November to get a full COLA in January a year later.

The date of final separation that you put on your forms is your last day of work with the agency, retirement is effective at the close of business (COB) that same day. However, to get a full COLA next year you would have to put December 30 in block 2 of Section B for FERS employees and involuntarily separated CSRS employees and your retirement would start on December 31st.

According to section 2A3.1-1 of the CSRS and FERS Handbook, the amount of an annuitant’s first COLA is prorated. The proration is based on the number of months from the annuity commencement date to the effective date of the first COLA after the commencement date.

  1. Retirees receive one-twelfth of the applicable cost-of-living increase for each month, not to exceed 12 months, that they are in receipt of an annuity before December 1.
  2. To receive the full December 1 increase, a retiree’s commencing date for retirement can be no later than December 31 of the previous year.

The rules in section 2A3.1-1 on proration of the first COLA for CSRS apply under FERS.

For FERS annuitants who are not eligible to receive a COLA during their first year (or more) on the annuity roll, the initial COLA they receive (after becoming eligible) is the full COLA without proration. The annuitants who fall in this category are:

  •  Annuitants under age 62 whose annuity commences at least 1 year prior to reaching age 62;
  •  Disability annuitants whose annuity benefits are based on 60 percent of average pay.

As we get closer to the end of the calendar year, some Federal Employees are contemplating retirement.

Some federal retirees, military retirees and Social Security recipients will receive a 2% cost of living adjustment (COLA) reflected in their payment which will arrive in January 2018.  The increase is effective in December 2017 and reflected in the January payment.

Who will (and who will not) receive the full COLA?

How is the COLA Calculated?

Determining the amount of the COLA for the next year is determined through an automatic formula that is not easy to understand. The COLA is determined by calculations using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The CPI-W is the index used for measuring increases in the prices of consumer goods such as food and beverages, housing, clothing, and gasoline. The two percent increase for 2018 was determined by computing the percentage increase in the CPI-W from third-quarter months of July, August and September. To trigger a COLA for the upcoming year, the average CPI-W for the third quarter must be greater than the highest previous third-quarter average. For the 2018 COLA, the differential was 2 percent.

Will You Receive a COLA Next Year?

One common question concerns when a person has to retire to receive the full COLA. The question is usually worded something like this: “I am retiring at the end of December this year. Will I receive the full retiree cost-of-living adjustment (COLA) payment in January?” The quick answer is “no.”

For CSRS Employees

A federal employee would have had to retire no later than November 30, 2016 to receive the full COLA. He would have to retire by no later than October 31, 2017 to receive a prorated COLA. This assumes an employee is under the CSRS retirement system.

For FERS Employees

If an employee is covered by the FERS system, in addition to having to be off the rolls by the above dates, the employee would also have to be age 62 to receive a COLA (unless he is a special category employee). FERS and FERS Special Cost-of-Living Adjustments are not awarded until a person is 62—except for disability, survivor benefits, and other special provision retirements.

What About TransFERS Employees?

Employees who voluntarily transferred from CSRS to FERS during a federal career are treated differently than “pure” CSRS or FERS employees. A TransFERS employee will receive a CSRS COLA on the CSRS portion of the annuity and a FERS COLA on the FERS portion of the annuity (assuming the retiree meets the applicable age requirement).

Will You Receive a Full or a Pro-Rated COLA?

To receive the full COLA in 2018 payments, a retiree or survivor annuity must have started no later than December 31, 2016. If not, the increase will be prorated under either the FERS or CSRS retirement plans. A prorated annuity payment will be one-twelfth of the increase for each month a person received benefits.  For example, if the retirement benefit started November 30, 2017, the prorated COLA would be one-twelfth of the full COLA.

For more information on annuity payments, check out the website from the Office of Personnel Management.

Most importantly, before you retire, request a Free Retirement Review so that we can go over all of this information with you prior to retirement. Request A Retirement Review Today!

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