Friday, October 15, 2010

No COLA Again

Retirees will get no COLA yet again in 2011

By Rick Maze - Staff writer
Posted : Friday Oct 15, 2010 10:48:46 EDT

For the second year in a row, there will be no cost-of-living adjustment in military and federal civilian retired pay, nor in veterans' disability and survivor benefits, in 2011.

"You have to look for the silver lining," said Steve Strobridge of the Military Officers Association of America, an expert in military compensation. "The reason there is no COLA is there is no inflation. Enjoy it while it lasts."

Annual adjustments in Social Security, government retirement and survivor benefits are calculated based on the Consumer Price Index, a measurement of a broad "market basket" of goods and services. Retirees saw a 5.8 percent COLA increase for 2009, the largest in 27 years, mainly caused by a sharp but temporary spike in energy and fuel costs in 2008.

But the stagnating economy made the index lag significantly in 2009, actually crossing into negative territory — "deflation" — and resulting in no COLA increase for 2010. Although the index has been very slowly edging upward in recent months, it still hasn't recovered to its previous peak, which it must do to trigger another COLA increase.

Strobridge said the situation is unprecedented in the 35 years that the current process has been in use. "Before last year, there was never a year when there was no COLA because there was no inflation," he said. "There also has never been a time when there was no COLA for two years in a row because there was no inflation."

There was no annual increase in retired pay in 1985 under a deficit-reduction program ordered by Congress, a one-time reduction that Strobridge fears might return because there is talk about capping or eliminating annual adjustments in Social Security and government benefits as a cost-cutting move to tackle the current deficit.

"That looks, in times of low inflation, like something that doesn't cause much harm, but it is really devastating in the long term," he said.

Retirees are likely to grumble that prices are increasing, not flat, but the formula set in federal law for deciding whether there will be a COLA compares average inflation in July, August and September of the current year to the previous year. The latest such comparison shows no change, largely because of drops in the cost of electricity, natural gas, apparel and non-food items, according to the Bureau of Labor Statistics, which tracks consumer prices.

"People tend to focus on price increases and not price cuts," said Strobridge. "They think about the times that gas prices have gone up over the last two years but not when prices have gone down."