Cost-of-Living Adjustment Processes for Federal Annuities Need To Be Changed

FPCD-76-80: Published: Jul 27, 1976. Publicly Released: Jul 27, 1976.

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GAO commented on the cost-of-living adjustment processes to the Federal annuity system The comments are generally limited to the civil service retirement system, since it is the largest system and often leads the other systems to change. Most of the observations also pertain to the other Federal systems.

The cost-of-living adjustment processes for Federal retirement annuities have resulted in annuities increasing faster than the cost-of-living and Federal white-collar pay rates. This has been caused by the extra 1-percent increase granted to annuitants by law each time their annuities are adjusted for increases in the cost of living. The Federal annuity adjustment processes are more liberal than those of non-Federal pension systems. Existing law also permits new retirees to benefit from increases in the cost-of-living which occurred long before they retired.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should enact legislation making the cost-of-living adjustment formula and related provisions of the civil service, uniformed services, foreign service, Central Intelligence Agency, Federal Reserve Board, District of Columbia judges, and District of Columbia public school teachers retirement systems more equitable and more consistent by: (1) repealing the 1-percent add-on feature or, as a minimum, eliminating its overcompensating effect by adjusting the Consumer Price Index (CPI) base by 1 percent each time an adjustment occurs; (2) regularizing the adjustment process by repealing the current CPI triggering mechanism and providing for annual adjustments based on the actual percentage rise in the CPI during the preceding year; and (3) repealing the provisions which permit retiring employees to receive higher starting annuities because of changes in the CPI before their retirement and providing that new retirees' initial cost-of-living adjustments be prorated to reflect only CPI increases after their effective dates of retirement.

 

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