Office of Personnel Management

Retirement and Insurance Group

1920 1954 1959 

 

1986 

Benefits Administration Letter

Number:95-111 Date: December 22, 1995

SUBJECT: Cost-of-Living Adjustment of Annuities;

New Variable Interest Rate

This notice provides information relative to cost-of-living adjustments of annuities, the variable interest rate for

1996, and other annual figures affecting retirement benefits.

1. DELAY IN EFFECTIVE DATE

Public Law 103-66, approved on August 10, 1993, delayed the effective date of future cost-of-living

adjustments (COLA) for retirees under the Civil Service Retirement System (CSRS) and the Federal

Employees Retirement System (FERS). The COLA delays will be in effect for Fiscal Years 1994, 1995,

and 1996. Each COLA that would have been effective on December 1 and reflected in the January 1

payment will instead be effective on March 1 and reflected in the April 1 payment. Only the payment date

for the COLA has changed. Eligibility for and proration of the COLA are still determined as of December

1 of each year. For example, a FERS retiree who turned 62 in January 1994 was not eligible for any

COLA in the April 1, 1994, payment because he was under age 62 as of December 1, 1993. Similarly, a

CSRS retiree whose annuity began on November 1, 1993, received 1/12 of the applicable COLA. Note: 

Pending legislation would extend the COLA delay through 2002.

2. CSRS COST-OF-LIVING ADJUSTMENTS

a. Summary. Annuitants who retired under the Civil Service Retirement System (CSRS) will get a

cost-of-living adjustment (COLA) in their April 1, 1996, annuity payment. (See the CSRS and FERS

Handbook for Personnel and Payroll Offices, Chapter 2, subchapter 2A.) The March 1, 1996, increase, to

be paid in April, will be 2.6 percent for all annuitants retired under CSRS, except those who have not been

on the annuity roll for a full year. The 2.6 percent increase was derived by computing the percentage

increase in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third

quarter average of 1994 to the third quarter average of 1995.

b. Proration of Retiree's First COLA. By law, a retiree's first COLA must be prorated. Retirees will get

one-twelfth of the applicable cost-of-living increase for each month they were on the annuity roll before

December 1, 1995, not to exceed 12 months. To get the full March 1, 1996, increase, a retiree's annuity

must have commenced no later than December 31, 1994. To get one-twelfth of the March 1, 1996,

increase, the annuity must have commenced no later than November 30, 1995.

c. The following table shows the actual prorated percentage increases that apply to CSRS retirees
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according to the month in which the annuity began to accrue:

Annuity Began Amount of Increase

December 1994 or earlier - 2.6%

January 1995 --- 2.4%

February 1995 -- 2.2%

March 1995 ----- 2.0%

April 1995 ------ 1.7%

May 1995 ------- 1.5%

June 1995 ------- 1.3%

July 1995 ------- 1.1%

August 1995 ---- 0.9%

September 1995 - 0.7%

October 1995 --- 0.4%

November 1995 - 0.2%

3. FERS COST-OF-LIVING ADJUSTMENTS

a. Summary. Eligible annuitants who retired under the Federal Employees Retirement System (FERS) will

get a COLA in their April 1, 1994, annuity payment. (See CSRS and FERS Handbook for Personnel and

Payroll Offices, Chapter 2, subchapter 2B.) The full March 1, 1995, increase will be 2.0 percent. When

the CPI increase is less than 3 percent, the FERS COLA is the CPI increase, or 2 percent, whichever is

less. Since the increase last year was 2.6 percent, as explained in item 2a, above, the full FERS COLA is

2.0 percent.

b. Proration of Retiree's First COLA. For FERS retirees who have not been on the annuity roll for a full

year, COLA's will be prorated as explained in item 1b, above. The following table shows the actual

prorated percentage increase that applies to FERS retirees according to the month in which the annuity

began to accrue:

Annuity Began Amount of Increase

December 1994 or earlier- 2.0%

January 1995 --- 1.8%

February 1995 -- 1.7%

March 1995 ------ 1.5%

April 1995 ------- 1.3%

May 1995 -------- 1.2%

June 1995 -------- 1.0%

July 1995 -------- 0.8%

August 1995 ---- 0.7%

September 1995 - 0.5%

October 1995 ---- 0.3%

November 1995 - 0.2%
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c. FERS Annuitants Who Are Under Age 62. FERS COLA's apply to retirees who were age 62 as as of

December 1, as well as --

- disability annuitants (see item d, below),

- military reserve technicians whose separation from technician service results from loss of military

membership on account of disability after attaining age 50 and completing 25 years of service, or

- employees who retired under the special provisions for law enforcement officers, firefighters, or air

traffic controllers.

d. Disability Annuitants. COLA's are payable to disability annuitants without regard to their age. 

However, COLA's are not payable on FERS disability annuities during the annuitant's first year on the roll

if the annuity rate is based on 60 percent of average salary. COLA's are payable, however, during the first

year if the annuitant's rate is based on an earned benefit or the annuity is redetermined because the

annuitant has reached age 62.

e. Survivor Annuitants. Spouse, former spouse, insurable interest, and child survivor annuitants under

FERS are entitled to COLA's regardless of age. After survivor annuities (other than children's annuities,

which are based on CSRS COLA rules) commence, they are subject to FERS COLA rules, even if they are

based on an annuity that includes a CSRS component.

The supplementary annuity paid to certain surviving spouses and former spouses is also subject to FERS

COLA's.

f. Employee Annuitants with a CSRS Component. Certain FERS retirees are entitled to a CSRS annuity

computation for a portion of their annuity. This CSRS component is subject to CSRS COLA rules. The

full CSRS COLA effective March 1, 1996, is 2.6 percent. The CSRS COLA rules also provide for

proration of the increase depending on the number of months the annuity was payable before the effective

date of the increase. CSRS COLA rules do not require the annuitant to be age 62. Therefore, the CSRS

portion of the annuity may increase even though no FERS increase is payable.

g. FERS Annuity Supplement. The retiree annuity supplement, if any, is not increased. COLA's apply

only to a retiree's basic annuity.

h. COLA Increase on the Basic Employee Death Benefit. Under FERS, a basic lump-sum benefit is

payable to the qualifying surviving spouse (or former spouse) of a deceased employee with at least 18

months creditable service. The law provides that this lump-sum benefit is an amount equal to 50 percent of

the employee's final annual pay (or average pay, if higher), plus $15,000, adjusted for COLA's under

CSRS rules. The latter amount, including prior COLA's, is currently $20,208.59. Since the CSRS COLA

this year is 2.6 percent, the benefit increases to $20,734.01 for any case in which the employee dies on or

after March 1, 1996, and before March 1, 1997.
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4. REEMPLOYED ANNUITANTS

a. Reemployed annuitants, both CSRS and FERS, whose salaries are being reduced by the amount of

their annuity must take an additional reduction in salary beginning March 1, 1996, or the date of

reemployment, whichever is later. The following rules apply:

- For CSRS annuitants, the reduction is equal to the 2.6 percent increase (or applicable prorated portion

if this is the first increase) in the annuity.

- For annuitants whose annuity was computed solely under FERS rules (i.e., the annuity does not include

a CSRS component), the reduction is equal to the 2.0 percent FERS increase (or applicable prorated

portion).

- For reemployed FERS annuitants whose annuity includes a CSRS component (see item 3f, above), the

additional reduction in their salary is determined by applying CSRS COLA rules to the CSRS portion

of their annuity. If no FERS COLA is payable, the additional reduction in salary for a reemployed

annuitant is based only on the increase in the CSRS portion.

b. To determine the new monthly rate to be used for reducing the reemployed annuitant's salary, adjust the

old monthly rate upward by the appropriate percentage and round to the next lowest dollar. An adjustment

must be at least one dollar. The new monthly salary reduction must be remitted to the Civil Service

Retirement and Disability Fund via RITS or the SF 2812. If you cannot determine the reemployed

annuitant's new rate, you can get help from:

Written Inquiries: Office of Personnel Management

Retirement Operations Center

Boyers, Pennsylvania 16017

Telephone Inquiries: Retirement Information Office

(202) 606-0500 

Your inquiries must include the annuitant's full name, date of birth, and retirement claim (CSA) number.

5. 1996 INTEREST RATE

a. The Department of the Treasury has informed OPM that the variable interest rate applied for certain

purposes under both the Federal Employees Retirement System and the Civil Service Retirement System is

6.875 percent for calendar year 1996.
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b. Prior interest rates are as follows:

before 1948 4%

1948 - 1984 3%

1985 13%

1986 11.125%

1987 9%

1988 8.375%

1989 9.125%

1990 8.75%

1991 8.625%

1992 8.125%

1993 7.125%

1994 6.25%

1995 7.00%

The interest on the FERS lump sum credit in 1984 was 11 percent.

c. The 6.875 percent interest rate for 1996 and the interest rates shown in item 5b, above, apply to all

deposits or refunds under FERS rules and FERS lump-sum credit death benefit payments.

For CSRS employees, and for employees who transferred from CSRS to FERS with entitlement to have

part of their benefits computed under CSRS rules, those interest rates also apply to:

- redeposits, if the agency or OPM received the refund application after September 30, 1982;

- deposits for noncontributory service performed after September 30, 1982;

- deposits for post-1956 military service; and

- interest paid on voluntary contributions.

d. A fixed 3 percent interest rate will continue to be applied in the following cases:

- refunds of CSRS deductions;

- redeposits (including CSRS component redeposits) if the agency or OPM received the refund

application before October 1, 1982;

- deposits for noncontributory CSRS service performed before October 1, 1982; and

- CSRS deductions withheld from the first of the month after an employee has performed sufficient

service to entitle him or her to the maximum annuity (excess deductions).

6. SIGNIFICANT SOCIAL SECURITY FIGURES FOR 1996
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a. On October 25, 1995, the Social Security Administration published figures in the Federal Register for

1996 that are significant for retirement matters. These figures are included here for the convenience of

agency personnel.

b. Social Security maximum wage base. The Social Security maximum taxable wage base for 1996 is

$62,700.

c. Hospital Insurance contribution base. The limitation on the amount of earnings subject to the Hospital

Insurance contribution was repealed (Public Law 103-66, section 13207). The Hospital Insurance tax is

now due on the total remuneration paid during the year.

d. Average total wages. The amount of average total wages for 1995 is $23,753.53.

e. Bend points. The dollar amounts, or bend points, used in the benefit formula for workers who become

eligible for benefits in 1996, and in the formula for computing maximum individual benefits for 1996, are

$437 and $2,635.

f. FERS retiree annuity supplement earnings limit. The Social Security earnings limitation for 1996 is

$8,280.00. Any FERS annuitant who is receiving a FERS annuity supplement (unless he or she is under

age 55 and retired under one of the special provisions for law enforcement officers, firefighters, air traffic

controllers, or military reserve technicians separated for loss of military membership) will have his or her

annuity supplement offset in 1997 by $1.00 for every $2.00 over this amount earned in 1996.

Mary M. Sugar, Chief

Agency Services Division