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Impact of Federal Employee COLA Reductions Would Be Dramatic

Written by FEDmanager on .

Proposed changes to federal pension benefits under the Trump Administration are poised to impact past, present, and future federal employees, if they are successfully implemented. 

The budget proposal – which could reduce or eliminate the cost-of-living adjustment for current and future federal retirees – is being considered as a cost-saving measure that would have the side-effect of dramatically eating into federal pensions.

According to financial planner Arthur Stein, whose analysis was featured by Federal News Radio, “Over as little as 10 years, a 72-year old retiree would “lose” — as in not receive — up to 18 percent in COLA payments if inflation was 3 percent, and lose up to 26 percent if inflation during the period averaged 4 percent.” Charting Stein’s data makes the potential impact of the cuts readily apparent:

As outlined by federalretirement.net, monthly retirement benefits for federal employees are based on three primary factors:

Changes to the COLA formulation would fundamentally alter that calculus by either minimizing the impact of, or eliminating entirely, the third factor outlined above.

While the cuts are far from a certainty, given the political battle in Congress that will likely ensue, the prospect is understandably alarming for federal employees whose future budgets rest on the decision.

Posted in General News

Tags: FERS, COLA

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