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Federal Pensions: Relationship Between Retiree Pensions and Final Salaries

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Report Type Reports and Testimonies
Report Date Aug. 11, 1997
Report No. GGD-97-156
Subject
Summary:

About 27 percent of the 1.7 million retirees who were receiving federal pensions as of October 1995 were receiving pensions that had come to exceed their final salaries. However, when their salaries were adjusted for inflation and expressed in constant dollars, no retiree was receiving a pension that was larger than his or her final salary. Three factors explain why the pensions exceed the retirees' unadjusted final salaries: the number and the size of cost-of-living adjustments (COLA) that retirees had received, the number of years that they had been retired, and the number of years that they had worked for the federal government. COLAs have played an important role in maintaining the purchasing power of retiree pensions. However, the COLA policies of the late 1960s and 1970s overcompensated for inflation and will continue to affect the pensions of those retirees who receive them as long as they are alive. If the current COLA policy--that is, the policy that was enacted in 1984--had been in effect without interruption since automatic COLAs began in 1962, the pensions of many retirees would have been different. GAO's analysis suggests that a majority of those who retired before 1970 would have received smaller pensions had the current COLA policy been continuously in effect during their retirement, and about 90 percent of those who retired after 1970 would have received larger pensions.

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