A CPI for Retirees Is Not Needed Now but Could Be in the Future

GGD-82-41: Published: Jun 1, 1982. Publicly Released: Jun 1, 1982.

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GAO reviewed the need for a retirees' Consumer Price Index (CPI) to aid Congress and others in deliberations regarding possible actions to maintain the financial stability of retirement programs.

GAO found that the use of a workers' index to trigger cost-of-living adjustments for the beneficiaries of the four major federal retirement programs had placed an extra financial strain on those programs. That strain can be attributed to the fact that existing indexes are based on underlying expenditure data that do not reflect how retirees spend their money. Compared to others, retirees devote a larger share of their total expenditures to food, fuel, and medical care and a lesser share to transportation, house purchases, and mortgage interest. The Bureau of Labor Statistics (BLS) plans to use a new approach called rental equivalence to construct the CPI, which should bring the existing indexes more in line with retiree consumption patterns. However, significant differences will still exist. The use of CPI-U would be more appropriate than the use of CPI-W, since it covers a larger target population. BLS should compute and publish a hybrid retirees' index once the homeownership component is revised and at least annually thereafter. The monitoring for divergencies should be centralized in one agency; the Office of Management and Budget (OMB) seems the most logical choice to fill that role.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: With the decline in inflation CPI-W, CPI-U, and weighting differences, it may no longer be significant enough to warrant further action.

    Matter: Congress should enact legislation requiring that CPI-U be used instead of CPI-W to compute the cost-of-living adjustments for federally administered retirement programs. Any such legislation should be enacted in time to coincide with the BLS decision to revise the homeownership component of CPI-U starting in January 1983.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: With the decline in inflation CPI-W, CPI-U, and weighting differences, it may no longer be significant enough to warrant further action.

    Recommendation: The Secretary of Labor should direct BLS to compute a retirees' index using that revised measure of homeownership costs and to recompute that index periodically thereafter, but at least annually, once the methodology for computing homeownership costs has been revised in the index used to escalate retirement programs. To compute that index, BLS should apply retiree expenditure weights to the price information already being collected in support of CPI-U.

    Agency Affected: Department of Labor

  2. Status: Closed - Not Implemented

    Comments: With the decline in inflation CPI-W, CPI-U, and weighting differences, it may no longer be significant enough to warrant further action.

    Recommendation: OMB should, once BLS starts computing a retirees' index: (1) monitor the relationship of that index to the index being used to calculate cost-of-living adjustments for federally administered retirement programs; and (2) determine, with input from the Social Security Administration and other agencies responsible for administering those programs, whether differences between the indexes are significant enough to warrant proposing changes to the mechanism for computing cost-of-living adjustments.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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