What Happened?

If you retired from a federal job, how much your pension grows each year depends on which retirement system you belong to, and the two systems do not treat inflation the same way. The Congressional Research Service (CRS) published a report titled "Cost-of-Living Adjustments for Federal Civil Service Annuities." ​

The federal government runs two retirement systems for its civil service: the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS), which Congress established in the 1980s. CSRS retirees generally receive the full cost-of-living adjustment tied to the Consumer Price Index, while FERS retirees receive a reduced adjustment when inflation exceeds a set threshold. Congress created FERS in the 1980s partly to lower the long-term cost of federal retirement, and the tiered COLA structure reflects that design.

Why Does it Matter to Me?

In January 2022, a year of high inflation, FERS retirees received a 4.9 percent COLA while CSRS retirees received 5.9 percent, according to the National Active and Retired Federal Employees Association (NARFE). The following year, CSRS retirees received an 8.7 percent adjustment while FERS retirees received 7.7 percent, NARFE reported.

For the roughly 2.7 million people drawing a FERS annuity, that difference compounds over time, each year's smaller increase becomes the new baseline for the next adjustment. Active federal employees are also affected, because their retirement planning depends on projected adjustment rates under whichever system they belong to.

Both Sides, Now

Congress built FERS in the 1980s partly to reduce long-term federal retirement costs, and its tiered COLA structure reflects that design.

Critics argue the reduced COLA can leave FERS retirees with smaller inflation protection, potentially eroding their purchasing power during high-inflation periods. NARFE's documentation of the 2022 and 2023 gaps serves as a concrete example of that erosion.

The Trump administration's push to restructure the federal workforce has renewed congressional interest in the cost of federal retirement benefits, since buyouts, reductions in force, or attrition can shift the retiree pool and change the government's long-term financial exposure under both systems. Congress has not yet authorized changes to either COLA formula, according to the CRS report.

What Happens Next?

Changing either system's COLA formula would require explicit statutory action. Either formula could surface in a broader budget or workforce bill, making the CRS report's technical details directly relevant to how lawmakers draft and price those measures.

The central question for retirees and current federal workers: will Congress leave the two-tier system in place, or use the next workforce bill to close the gap?

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AllCiv makes it easy to stay politically informed and involved.

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