Cost-of-living adjustments will decline for federal retirees again in 2025
For the second straight year, former federal workers will see a smaller increase to their defined-benefit annuities in January, with FERS retirees set for a 2% increase and CSRS annuitants a 2.5% bump.
The annual cost-of-living adjustment for federal retirees is set, and for the second straight year, it may disappoint them.
The Social Security Administration on Thursday announced that Social Security beneficiaries will receive a 2.5% cost-of-living adjustment in January, a decrease from last year's 3.2% increase in annuity payments. SSA calculates the annual increase based on the annual change in the third quarter consumer price index for workers.
Federal retirees enrolled in the Civil Service Retirement System will receive a 2.5% increase to their annuities in January, but former feds who are part of the newer Federal Employees Retirement System, which launched in the 1980s alongside the 401(k)-style Thrift Savings Plan, will see only a 2.0% cost-of-living adjustment.
That's because FERS' cost-of-living adjustment is calculated based on an extrapolation of the Social Security and CSRS increase. Each year, if CSRS sees an increase of less than 2%, FERS retirees receive the full COLA, while if the adjustment is between 2% and 3%, like next year, FERS enrollees only receive a 2% increase. And if the CSRS COLA is 3% or more, FERS retirees receive that adjustment, minus 1 percentage point.
That formula is a source of consternation among federal employee and retiree groups, and some Democratic lawmakers. Legislation, thus far not acted upon in either chamber of Congress, like the Equal COLA Act, would ensure both FERS and CSRS retirees receive the same annuity increase each year.
In a statement, National Active and Retired Federal Employees Association National President William Shackelford said that while overall inflation may be waning, the accompanying decrease in former feds' cost-of-living adjustments is a tough pill to swallow alongside news that federal workers and retirees will pay, on average, 13.5% more toward health care premiums in the Federal Employees Health Benefits Program next year.
"With inflation above 2%, FERS retirees will have their COLAs capped, reducing the real value of their annuities," Shackelford said. "Inflation impacts these FERS retirees the same way as all other retirees, yet they are forced to accept a diet COLA. The Equal COLA Act would remedy this inequity, providing full COLAs to FERS retirees . . . This COLA also does not account for the sharp increase in the enrollee share of health insurance premiums affecting the federal community, which will rise by an average of 13% next year for federal annuitants. While such increases may impact the following year's COLA, they are not yet reflected in the past year's data."
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