Raise vs COLA vs Locality
I think we need to get back to the basics so everyone can be on the same page when we have our discussions.
Definition Time
Raise. What currently employed government workers get each January. Well, at least most Januarys. Mr. Obama saw fit to not allow a raise for 3 years. This is generally comprised of both a raise to the pay levels, as well as an adjustment in the locality pay. For example, in 2023, employees received a 4.1% raise on the pay level. And then on average, received a .5% increase in locality pay. So that the average increase in pay for an employee was 4.6%.
COLA. Cost of Living Adjustment. This is for someone who is retired. Either CSRS or FERS. But it is for retirees only. Current employees do not get a COLA. They get a raise (see above). 2023 COLAs were 7.7% for FERS retirees, 8.7% for CSRS retirees.
Locality Pay. This is the extra pay over and above the base salary that an individual receives based on their duty station. For example, an employee in Houston would receive a locality pay of 34.47%. Someone in Charlotte would receive 18.63% locality pay on top of their base. Washington DC receives 32.49% . And Rest of the U.S. receives 16.5%. Note: When a person transfers from Houston to Chicago, they do not now get Chicago COLA, they get Chicago Locality Pay. “Chicago COLA” is not a thing. It is very common for people to say they live in a “High-COLA” area, but that is an incorrect statement. COLAs refer to the increase in pension of retirees. Not to the different pay adjustments around the country.
Ok, now that we have the terms down, how do each of them get calculated?
RAISE.
This is the most arbitrary. It has so many different ways. Bear with me.
First of all, there is something called the Federal Employees Pay Comparability Act (FEPCA). This is legislation that creates a formula for determining what a federal employee’s raise will be each year. Part of it is on the base salary and part of it is on the locality pay. It is based on the Department of Labor’s Employment Cost Index. Which works kind of like the Consumer Price Index we hear about but not exactly. The end result is the same. The formula takes into account inflation after a fashion, and spits out our raise. These would be really nice raises….if we got them!!
Wait, what?!
The issue is the FEPCA is ignored. And it’s allowed to be ignored. I read recently that if the FEPCA was actually allowed to be followed this year, employees would get a 25% raise. 25%. Trust me—you ain’t gettin 25%.
So who determines our raise then if the government is allowed to ignore the rule that determines our raise?
We are left with 2 separate options: The President by way of executive order, or Congress by way of law. The President will often issue his proposed “alternative pay plan” as it is called. Alternative to the FEPCA, essentially. He declares an economic emergency (seriously!) to prevent the FEPCA from being implemented.
As Govexec.com puts it, “For decades, presidents have used this tool to avoid much larger jumps in feds’ pay from taking effect.”
Maybe it’s just me, but I don’t see how it can be an economic emergency every single year. That’s not how emergencies work….
Biden has proposed a 5.2% average raise for 2024. Now, Congress could step in and enact some laws included in a future bill that raises (or lowers) that amount. It looks like Congress is not going to get involved in it this year. In other words, there does not seem to be any opposition to the President’s proposal.
So the 5.2% figure appears to be what will actually happen in January. The only question really is how much of the 5.2% will be the across the board raise that everyone will get, and how much will be the average locality pay.
Historically, .5% of the increase is reserved for the average locality pay increase. Meaning for 2024, 4.7% would be the increase to the GS schedule pay, while on average, employees will receive a .5% locality pay increase. So some will receive more than .5% and some less. How this typically shakes out is that some cities will see a raise of say, 4.9% and some will receive a raise of 5.4%, but on average, 5.2% will be the raise.
In summary, if you’re an employee, your raise could come from FEPCA (unlikely because that’s too fair and equitable), the White House, or Congress. Most of the time, it seems to come from the White House. 2024 is not shaping up to be anything different.
COLA
Much, much easier. And less subjective. It’s based on an inflation formula, not the whim of a President. (Remember this is for retirees, not employees).
CPI-W (known as the Consumer Price Index for Urban Wage Earners and Clerical Workers) is a type of inflation measurement. COLAs are based entirely on the change in this number. Specifically, the 3rd quarter of this year’s CPI-W (reported the second week of October) is compared to the 3rd quarter of last year’s CPI-W. The increase in that inflation measurement determines the amount of the COLA.
If inflation is less than 2%, FERS will receive the same COLA—whatever the amount of inflation. For example, if CPI-W is 1.5%, then the COLA will be 1.5%
If inflation is between 2% and 3%, then FERS COLA will be 2%
If inflation is over 3%, then the FERS COLA will be the inflation number minus 1%.
(I know, I know. I didn’t make the rules!!! If I did, it wouldn’t be so unnecessarily complicated!!)
CSRS always gets whatever the COLA is. So CSRS is typically higher than FERS COLA. This is where the Dad-joke like term, “FERS Diet Cola” comes from. CSRS gets the real COLA, we get the weakened COLA.
Let’s take a look at 2023 COLA again. CSRS got 8.7% while FERS got 7.7%. Why? Because CSRS always gets the actual inflation, which was 8.7%. FERS gets 1% less than actual inflation if inflation is over 3%. It was 8.7% so subtract 1% and FERS COLA was 7.7% for 2023.
Why are they different? Well, if you’ve studied government retirement for any length of time, you’ll know that the rules are constantly changing. And they are ALWAYS changing in the government’s favor. It’s like a small, little, unknown war is being waged against your benefits every single day. This is just another front that we FERSONIANS lost on. CSRS to FERS was a huge downgrade in retirement benefits. Just like the FERS system has been whittled away to be less than it used to be (new hires pay 4.5% toward their pension when old hires paid .8%. It’s constantly getting worse).
2024 Projections? Looks like inflation estimates are putting it around 3-4% based on what I’ve seen. So let’s say it comes at 3.5%. CSRS would get 3.5%, FERS would get 2.5%. And absolutely nothing about this has anything to do with the FERS raise, which is for employees, remember.
One common question? Once you retire and you move to a different city, does your retirement amount change? NO! Locality pay is what you’re referring to, and it is only for current employees that move around. COLAs are across the board for all retirees and OPM doesn’t care if you live in Manhattan, South Dakota, or Africa. You get the same COLA when you’re retired. Moving cannot alter your annuity.
LOCALITY PAY. Who determines that? Well, that’s a combination of OPM, Bureau of Labor Statistics, the President’s Pay Agent and the Federal Salary Council. I don’t think you want to know all about that since the increase is such a tiny aspect of your overall pay and it’s very complicated.
“But Chris, I heard there was a different COLA? Like if you work in Puerto Rico or someplace?”
One last thing to address. If you are a current employee, and you work outside of CONUS, but not in a foreign area, you may get a different COLA. OPM refers to these areas as “nonforeign”. Which always makes me smile, since the continental United States is not considered nonforeign. But it certainly isn’t considered foreign. So how can something not be foreign or nonforeign? Government math.
Anyway…for example, if you work in the Virgin Islands or Alaska, you do get a locality pay, but you also get a small, but different, COLA. To add confusion to the mix, this is an abbreviation for Cost of Living ALLOWANCE, not adjustment. So there are two different COLAs—one is the Cost of Living Adjustment that government retirees get. And one is Cost of Living Allowance that current employees in nonforeign localities get in lieu of locality pay. Confusing? Sorry. Again, I didn’t write it. If I did, rest assured it would be called something else.
So let’s summarize this bowl of OPM spaghetti:
RAISE: What current employees receive in January. Determined (probably) by the President, or maybe Congress, but not by the original method, FEPCA which would give us what we deserve.
COLA: What retirees get. Tied to inflation (CPI-W). Published the second week of October each year
Locality Pay: The different pay incentives based on a geographical location inside the United States. Houston vs. Chicago, San Fran vs Miami. (If you work in a nonforeign area, you may get the COLAllowance instead of Locality Pay).