Retirement Security:

BLS Should Explore Ways to Improve the Accuracy, Timeliness, and Relevance of Its Cost-of-Living Measurements

GAO-20-422: Published: Jun 16, 2020. Publicly Released: Jun 16, 2020.

Multimedia:

  • PODCAST: Calculating Cost-of-Living Adjustments for Retirement Benefits

    More than 60 million Americans receive retirement benefits from the federal government. This includes older Americans, who receive Social Security--as well as workers with disabilities, and their families. As life expectancy in the U.S. has increased, so have concerns about how these benefits are calculated and increased to include changes in cost of living. We talk to GAO's Charlie Jeszeck about how cost of living for retirement benefits is calculated.

    View the transcript

Additional Materials:

Contact:

Charles A. Jeszeck
(202) 512-7215
jeszeckc@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Federal retirement programs often have Cost-of-Living-Adjustments (COLAs) to ensure benefits keep pace with inflation. This includes Social Security for more than 60 million older Americans, workers with disabilities, and their families. These COLAs are typically based on consumer price indexes for certain groups of Americans.

The Bureau of Labor Statistics (BLS) produces these indexes, but it hasn’t evaluated whether its data accurately reflect what these groups pay, where they shop, and what they purchase. We recommended that BLS evaluate the data they use, as well as explore using other data, to improve its indexes.

Woman looking at cost-of-living information on the Social Security website

Woman looking at cost-of-living information on the Social Security website

Multimedia:

  • PODCAST: Calculating Cost-of-Living Adjustments for Retirement Benefits

    More than 60 million Americans receive retirement benefits from the federal government. This includes older Americans, who receive Social Security--as well as workers with disabilities, and their families. As life expectancy in the U.S. has increased, so have concerns about how these benefits are calculated and increased to include changes in cost of living. We talk to GAO's Charlie Jeszeck about how cost of living for retirement benefits is calculated.

    View the transcript

Additional Materials:

Contact:

Charles A. Jeszeck
(202) 512-7215
jeszeckc@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

The U.S. Bureau of Labor Statistics (BLS) faces accuracy, timeliness, and relevancy challenges developing consumer price indexes (CPI) for subpopulations of blue-collar workers and older Americans. For example, the CPI for these workers is used to adjust federal retirement benefits for inflation, including Social Security. BLS has not evaluated the extent to which its existing data are adequate to produce CPIs that reflect what these subpopulations pay, where they shop, and what they purchase. Officials cite budgetary reasons for not having done this, but there may be cost-efficient methods for evaluating the adequacy of these data. Without an evaluation, federal retirement benefits could be subject to adjustment based on potentially inaccurate information. Additionally, BLS has made limited use of certain data already collected by the federal government—such as National Accounts data on U.S. production and consumption—that could be used to increase the accuracy, timeliness, and relevancy of CPI calculations that reflect the mix of goods and services consumers purchase. Without adequately exploring the potential of using these data, BLS may be missing an opportunity to improve its CPIs.

 

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Reports about the retirement systems in the 36 Organisation for Economic Co-operation and Development countries indicate that most use their primary measures of inflation to adjust government retirement benefits. In addition, all three of GAO's case study countries (Australia, New Zealand, and the United Kingdom, or U.K.) have a variety of CPIs, including for subpopulations, and they filled information gaps in their CPIs with National Accounts and other data. For example, Australia and the U.K. use National Accounts data annually to update their calculations of the mix of goods and services consumers buy, thereby making the CPIs more relevant and accurate. All three countries also collaborated with stakeholders—such as other agencies—to implement changes, for example by gathering input on the design of subpopulation CPIs.

Why GAO Did This Study

In the United States, federal retirement programs typically include cost-of-living adjustments based on a CPI that measures inflation for a subpopulation of workers. This includes Social Security, which provides benefits for more than 60 million older Americans, workers with disabilities, and their families. As the life expectancy of Americans continues to increase, more Americans will be subject to these adjustments, so it is critical for them to be accurate.

GAO was asked to review U.S. and international efforts to measure the cost of living for older populations. This report examines (1) key issues that BLS faces in measuring the cost of living for older Americans; and (2) the experiences of other countries that developed alternate methods of adjusting retirement benefits. GAO reviewed pertinent literature; assessed BLS efforts to measure inflation; conducted case studies in three countries—Australia, New Zealand, and the U.K.—with a variety of CPIs, which GAO selected based on expert referral and document review; and interviewed agency officials and experts.

What GAO Recommends

GAO recommends that BLS explore cost-efficient ways to evaluate the data currently used to produce subpopulation indexes, and explore the use of National Accounts data to produce more accurate, timely, and relevant CPIs. BLS agreed with the first recommendation but disagreed with the other. GAO continues to believe both recommendations are warranted, as discussed in the report.

For more information, contact Charles A. Jeszeck at (202) 512-7215 or jeszeckc@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: The Department of Labor agreed with this recommendation and stated that it would continue to investigate improvements to subpopulation indexes.

    Recommendation: The Secretary of Labor should ensure that BLS explores cost-efficient ways to evaluate the data sources currently used to produce subpopulation indexes, such as by engaging more directly with other stakeholders or seeking input from its advisory groups and other knowledgeable entities about approaches to expand data collection in a cost-efficient manner. (Recommendation 1)

    Agency Affected: Department of Labor

  2. Status: Open

    Comments: The Department of Labor (DOL) disagreed with this recommendation, stating that the National Accounts data are not a replacement for Consumer Expenditure Survey data. We agree that the National Accounts data are not a wholesale replacement for the Consumer Expenditure Survey data, but it would still be useful to examine National Accounts data as an augmenting, alternative source of data to supplement or enrich the Consumer Expenditure Survey. Such an effort could potentially lead to more accurate, timely, and relevant CPIs. Although DOL noted that the Consumer Expenditure Survey is a continuous survey and that data are received quarterly, most CPIs still rely on expenditure weights based on Consumer Expenditure Survey data that are up to 4 years out-of-date. In addition, the Consumer Expenditure Survey faces increasing costs and declining response rates. DOL said it is exploring ways to accelerate the data collection and processing time and that it periodically investigates the frequency of updating expenditure weights. This is a laudable effort that we believe warrants further action to explore additional opportunities for improvement, such as researching the extent to which there are instances or categories for which the National Accounts data could be used to produce more up-to-date expenditure weights than the Consumer Expenditure Survey.

    Recommendation: The Secretary of Labor should ensure that BLS explores the use of already collected National Accounts data to produce more accurate, timely, and relevant CPIs. (Recommendation 2)

    Agency Affected: Department of Labor

 

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