Civil Service Federal Employees Federal Employees Federal Employees

Retirement Group Life Health Benefits Retirement

System Insurance Program System

United States

Office of Personnel Management

Retirement and Insurance Service

Benefits Administration Letter

Number: 97-706 Date: November 28, 1997 

Subject: Cost-of-Living Adjustments for Annuities; New Variable

Interest Rate

Background: This letter provides information about cost-of-living

adjustments (COLA) for annuities, the variable interest rate for

1998, and other annual figures affecting retirement benefits.

Civil Service Retirement

System Cost-of- Living

Adustment

Annuitants who retired under the Civil Service Retirement

System (CSRS) will get a cost-of-living adjustment (COLA)

effective December 1, 1997. They will receive the increases in

their January 2, 1998, annuity payments. (See The CSRS and

FERS Handbook for Personnel and Payroll Offices, Chapter 2,

subchapter 2A.) The increase will be 2.1 percent for all

annuitants retired under CSRS, except those who have not been

on the annuity roll for a full year. The 2.1 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 1996 to the

third quarter average of 1997.

Proration of CSRS

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, 1997,

not to exceed 12 months. To get the full December 1, 1997,

increase, a retiree's annuity must have begun no later than

December 31, 1996. To get one-twelfth of the December 1,

1997, increase, the annuity must have commenced no later than

November 30, 1997.

CSRS Proration Table The following table shows the actual prorated percentage

increases that apply to CSRS retirees according to the month in

which the annuity began to accrue:
BAL 97-706 2

Annuity Began Amount of Increase

December 1996 or earlier - 2.1%

January 1997 1.9%

February 1997 1.8%

March 1997 1.6%

April 1997 1.4%

May 1997 1.2%

June 1997 1.1%

July 1997 0.9%

August 1997 0.7%

September 1997 0.5%

October 1997 0.4%

November 1997 0.2%

Federal Employees

Retirement System

(FERS) Cost-of-Living

Adjustments Summary

Eligible annuitants who retired under the Federal Employees

Retirement System (FERS) also will get a COLA in their

January 2, 1998, annuity payments. (See The CSRS and FERS

Handbook for Personnel and Payroll Offices, Chapter 2,

subchapter 2B.) The full 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 CPI

increase last year was 2.1 percent, as explained in the section

on CSRS Cost-of-Living Adjustments, the full FERS COLA is

2.0 percent.

Proration of FERS

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 the section

on Proration of CSRS Retiree's First COLA . The table

below 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 1996 or earlier - 2.0%

January 1997 1.8%
BAL 97-706 3

February 1997 1.7%

March 1997 1.5%

April 1997 1.3%

May 1997 1.2%

June 1997 1.0%

July 1997 0.8%

August 1997 0.7%

September 1997 0.5%

October 1997 0.3%

November 1997 0.2%

FERS Annuitants

Who Are Under Age

62

FERS COLA's apply to retirees who were age 62 as of December

1, 1997 as well as --

- disability annuitants (see section below on Disability

Annuitants),

- 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, and

- employees who retired under the special provisions for law

enforcement officers, firefighters, or air traffic controllers.

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 in receipt of benefits 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.

FERS 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 increased by FERS COLA's.
BAL 97-706 4

FERS 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 December 1,

1997, is 2.1 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.

FERS Annuity

Supplement

The retiree annuity supplement, if any, is not increased. COLA's

apply only to a retiree's basic annuity.

COLA Increase on

the FERS 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 who had 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

$21,335.30. Since the CSRS COLA this year is 2.1 percent, the

benefit increases to $21,783.34 for any case in which the

employee dies on or after December 1, 1997, and before

December 1, 1998.
BAL 97-706 5

Reemployed

Annuitants -- CSRS

and FERS 

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 earned on or after December

1, 1997. The following rules apply:

- For CSRS annuitants, the reduction is equal to the 2.1

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 section above on FERS Employee

Annuitants With a CSRS Component), 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 Retirement and Insurance

Transfer System (RITS) or the SF 2812. If you cannot determine

the reemployed annuitant's new rate, you may contact the U.S.

Office of Personnel Management (OPM). Your inquiries must

include the annuitant's full name, date of birth, and retirement

claim (CSA) or social security number.

Internet and/or

Email Address

At this time, due to concerns about security over the internet, we

will not accept or respond to agency requests for individual

annuity adjustment amounts by email. We will review this

procedure when internet security is more assured.

Written Inquiries U.S. Office of Personnel Management

Retirement Operations Center

P. O. Box 45

Boyers, Pennsylvania 16017-0045
BAL 97-706 6

Telephone Inquiries Retirement Information Office

(888) 767-6738

Telecommunication

Device for the Deaf

(TDD)

(800) 578-5707

1998 Interest Rate 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 6.75 percent for calendar year 1998.

Prior Interest Rates

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%

1996 6.875%

1997 6.875%

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

percent.
BAL 97-706 7

Interest Rates Under

FERS Rules

The 6.75 percent interest rate for 1998 and the interest rates

shown in the Interest Rate Chart 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.

Fixed Interest Rate 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).

Significant Social

Security Figures for

1998

On October 16, 1997, the Social Security Administration

published a Fact Sheet that listed 1998 figures that are significant

for retirement matters. A copy of that Fact Sheet is available at

Social Security Administration's Internet site, Social Security

Online at (http://www.ssa.gov/press/1998fact.htm). These

figures are included here for the convenience of agency personnel.

Social Security

Maximum Wage Base

The Social Security maximum taxable wage base for 1998 is

$68,400.
BAL 97-706 8

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 due on the total

remuneration paid during the year.

Average Total Wages The amount of average total wages for 1996 is $25,913.90.

Bend Points The dollar amounts, or bend points, used in the benefit formula

for workers who become eligible for benefits in 1998, and in the

formula for computing maximum individual benefits for 1998, are

$477 and $2,875.

FERS Retiree

Annuity Supplement

Earnings Limit

The Social Security earnings limitation for 1998 is $9,120.00. 

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 1999 by $1.00 for every $2.00 over this

amount earned in 1998.

TSP Referral Limit For Tax Year 1998, the Internal Revenue Service has announced

that the annual limit on elective deferrals will be $10,000. For

purposes of the Thrift Savings Plan (TSP), the term "elective

deferrals" refers to Employee Contributions, which are made on a

tax, deferred basis. The 1998 elective deferral limit may be

obtained from the TSP Web site (www.tsp.gov).

Mary M. Sugar, Chief

Agency Services Division

Retirement and Insurance Service