Federal retirees under the old Civil Service Retirement System receive the full COLA amount.

However, there is a slightly different system for retirees under the Federal Employees Retirement System. If the COLA is more than 3 percent, FERS retirees will receive 1 percent less than the general increase. If the COLA is between 2 percent and 3 percent, FERS retirees receive just a 2 percent increase.

For example, with a COLA of 3.6 percent, FERS retirees can expect to receive a 2.6 percent increase.

However, most FERS retirees will not have the COLA applied to their annuity until age 62.

via Social Security announces 3.6 percent COLA – FederalNewsRadio.com.

A recent Federal Times article discusses the “problem” in some detail, and comes to a surprising conclusion: there isn’t a problem!

But there’s no evidence to suggest federal pension plans are a financial bomb waiting to go off. That was defused when CSRS was ended, and since FERS is legally required to be fully funded, the unfunded liability will fade over time.

OPM and outside observers such as Adcock and Palguta aren’t the only ones saying the system is sound. The Congressional Research Service has published several reports in recent years on federal pension programs, all of which concluded the programs are on solid ground.

"Although the civil service trust fund has an unfunded liability, it is not in danger of becoming insolvent," CRS said in a January report.

Audit firm KPMG has consistently given OPM’s financial statements and retirement programs unqualified opinions, meaning they found no significant problems.

And the Government Accountability Office said in a 1995 report that CSRS’ flaws, which resulted in the unfunded liability, were resolved with the creation of FERS.

"Provisions have been made for the retirement fund to always have sufficient budget authority to cover future benefit payments," former Assistant Comptroller General Johnny Finch said at a House hearing.

via Fed pensions underfunded by $673B – FederalTimes.com.

Redetermination Provisions

We believe that the implication that OPM has the discretion to make basic changes in the allocation method between the Postal Service and the Treasury goes beyond the intent of, and the authority provided to OPM in, the 2006 Postal Accountability and Enhancement Act. That law included a provision, section 802(c), allowing the Postal Service to appeal to OPM its annual determination ofthe Postal Service CSRS supplemental liability under 5 U.S.C. 8348(h)(1).

Section 802(c) provides in pertinent part:

(A) Request for review.–Notwithstanding any other provision of this section
(including any amendment made by this section), any determination or redetermination made by the Office of Personnel Management under this section (including any amendment made by this section) shall, upon request of the United States Postal Service, be subject to a review by the Postal Regulatory Commission under this subsection.

Our view is that, section 802(c) is intended to permit review of specific calculations made by OPM of the annual supplemental liability determination according to the established Fund allocation methodology. The Segal report is something entirely different, a review of what methodology should be employed generally in evaluating one aspect of Postal Service CSRS obligations. Nevertheless, OPM is providing this response in the manner as would be applicable under section 802(c)(2).

Conclusion

After careful review by counsel, we have concluded that OPM does not have the authority to make a reallocation in the manner suggested in the Segal report. However, if Congress determines that another methodology is more appropriate, OPM will of course comply with any changes in the current law.

OPM Response to PRC Report

The current FERS program likely will result in either the most productive or skilled employees leaving well before 30 years for better paying opportunities. This will likely include contractor jobs where the taxpayers pay more for the same services…

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