For the second year, United States federal retirees will get the largest annual benefit increase in decades. The Social Security Administration announced last Thursday that the annual Social Security cost-of-living adjustment for 2023 will be 8.7%. But, not all federal retirees will receive the full 8.7%. This news has led to new calls for parity among federal government retirement systems.
Social Security cost-of-living increases are calculated based on the annual change in the consumer price index for workers for the third quarter of the year. The Civil Service Retirement System also calculates annual increases for enrollees on that basis. This means that retirees enrolled in CSRS will see an 8.7% increase in their payments in 2023, the largest COLA since 1981.
During the past year, Social Security and CSRS pensioners received a cost-of-living adjustment of 5.9%. This was the largest increase since 1982. But not everyone will receive the same raise. Former federal workers enrolled in the new Federal Employees Retirement System, which came into being along with the 401(k) Thrift Savings Plan, will only receive a 7.7% increase.
This difference is because FERS operates on an extrapolation of the Social Security and CSRS cost-of-living adjustment. Each year, if CSRS experiences an increase of less than 2%, FERS retirees receive the full COLA. If the adjustment is between 2% and 3%, FERS members receive only a 2% increase. And if the CSRS COLA is 3% or more, FERS retirees receive both the Social Security and CSRS COLA, minus one percentage point.
Federal workers to get smaller increase than Social Security benefits
“While CSRS annuities and Social Security benefits will go up 8.7%, the January 2023 COLA, for Federal Employees Retirement System retirees the increase will be 7.7%,” said Ken Thomas, national president of the National Active and Retired Federal Employees Association.
“It is an unfair policy, enacted in the 1980s with the creation of FERS, as it does not fully protect the earned value of FERS annuities, which decline in value year after year, exactly what COLAs are intended to prevent.”
Ken Thomas also renewed his organization’s call for the government to change the economic metric used to calculate the annual increase in retirement annuities to one that more closely aligns with retiree spending: the consumer price index for seniors. During the 2020 presidential campaign, President Biden endorsed this idea, although it has so far failed to materialize.
“Seniors spend more on health care than any other segment of the population, and those who enroll in Federal Employees Health Benefits plans by 2023 will see an average 8.7% increase in their share of premiums, the biggest jump since 2011,” Thomas said. “For years, NARFE has urged Congress to address the situation of COLAs not keeping up with rising health care costs by passing legislation requiring the Office of Labor Standards to calculate COLAs based on the Consumer Price Index for the Elderly (CPI-E) instead of the Consumer Price Index for Workers (CPI-W)”.