When a “COLA” is not a “COLA”

August 27, 2012 — This week on For Your Benefit host Bob Leins welcomes NITP federal benefits specialist Bob Braunstein to the studio.

Together they examine the annual system for pay adjustments for federal employees and federal retirees. The systems are very different because they are based on different sets of economic factors.

As Braunstein explains, active federal employees, technically speaking, do not receive a cost-of-living allowance, or COLA. Instead, increases in pay, when they do occur, are based on the change in private sector wages and salaries. This is done to keep government salaries competitive with private sector salaries and is known as a “pay comparability adjustment,” Braunstein says.

Federal retirees, on the other hand, do receive a COLA based on the changes in the Consumer Price Index. As Braunstein and Leins explain in today’s show, the goal is to keep your income at the same level of purchasing power throughout your retirement.