FERS & CSRS on COLA 2023 adjustment: is there an increase for federal & civil retirement?

The same inflation that continues to take a toll on household finances resulted in a historic 2023 cost-of-living adjustment increase. The 8.7 percent COLA is the largest in 42 years and will boost not only Social Security payments but also pensions and benefits for those who served in the Armed Forces and civil government employees.

However, the 2023 COLA, apart from Social Security benefits, will not be applied uniformly across the other federal government pension programs. While those who receive Civil Service Retirement System (CSRS) annuity payments will see the full 8.7 percent increase, those enrolled in the newer Federal Employees Retirement System (FERS) will get a lesser COLA.

2023 COLA for the Federal Employees Retirement System (FERS)

More than 2.6 million people received civil service annuity payments, both employees and survivors, in 2018 according to government data. Over two thirds of them received benefits earned under CSRS and will see their monthly payments jump by 8.7 percent when the first are issued for January 2023.

Meanwhile the remaining third will get the 2023 COLA for FERS, which will be 7.7 percent. Those on FERS are more recent government employees who began having their retirement covered under the new program since 1 January 1987.

The slightly smaller increase to their annuity payments is due to how FERS was established when Congress created the pension scheme in 1986. The retirement plan provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan.

How does COLA work for the FERS Basic Benefit Plan

The COLA for the FERS Basic Benefit Plan under the current law only matches the COLA for Social Security and CSRS when the increase is less than 2 percent. When the COLA is between 2 percent and 3 percent the FERS COLA is capped at the 2 percent.

In the event the SSA and CSRS COLA surpasses 3 percent, as it did again for 2023, FERS enrollees receive a COLA that is reduced by 1 percent. Thus the reason that FERS pension annuity monthly payments will only rise by 7.7 percent in 2023. Like their CSRS compatriots, the increased amount will begin with payments for January 2023.

How is the COLA calculated?

Using a formula detailed in federal law the Social Security Administration takes the CPI-W, a broad government measure of inflation, from the third quarter of the fiscal year, in this case July, August and September 2022, and compare that to the one from previous year. Based on the figures from the previous two CPI-W reports The Senior Citizens League (SCL), an advocacy group had estimated a COLA increase for 2023 of 8.7 percent.

The official announcement of the 2023 COLA came the same day as the Consumer Price Index for Urban Wage Earners and Clerical Workers‌ (CPI-W) for September 2022 which came in at 8.5 percent. The historic COLA of 8.7 percent, the highest since 1981, came on the back of red-hot inflation which has finally begun to ease but not enough that it is causing hardship for households across the nation.