Extended Deflation Would Curb Benefits

The Washington Times (Washington, DC), May 27, 2003 | Go to article overview

Extended Deflation Would Curb Benefits


Byline: Mike Causey, THE WASHINGTON TIMES

An extended spell of deflation where prices go down, not up will trim the January cost-of-living adjustment (COLA) for people who get civil service retirement benefits, retired military pay or Social Security payments.

Just last month, the decline in prices dropped the projected January 2004 retiree COLA from 2.1 percent to 1.8 percent. Any extended period of deflation also could cut into whatever pay raise federal civil servants get in January.

Retiree COLAs are fixed by formula and law. If the inflation rate goes up, which is the norm, they get a catch-up adjustment the first of each year. Most private pension benefits are frozen at retirement, and COLAs are something private-sector retirees drink, not get.

Federal pay raises have little, if anything, to do with inflation. But deflation could be another matter.

The 2 percent that the Bush administration has projected for feds next year could be whittled back as an economic gesture if the economic picture gets bleaker. And congressional Democrats who managed to boost pay raises proposed by both Presidents Clinton and Bush would have a tougher time if deflation persists.

Flexible spending accounts

Unless you have perfect teeth, perfect eyesight, perfect health and children who can take care of themselves during the day, you may be a candidate for a flexible spending account.

Government-style FSAs come in two varieties: a medical FSA (an amount designed by you from $250 to $3,000), and a child care FSA ($250 to $5,000). Both are funded by you using pretax dollars. That lowers your tax bite and permits you to pay for expenses not covered by your regular insurance.

Many feds had hoped to use the FSA money to pay for dental benefits that are not covered (or not covered very well) by federal health plans, or most private-sector plans for that matter.

The federal FSA program is still being fine-tuned. Among other things, Congress wants it to drop annual administrative charges of up to $75 for workers with accounts. Another problem is not all agencies are ready to make the payroll changes needed to deduct and process the accounts.

Officials say the program will begin by July 1, but not all agencies including Defense, Energy, the White House and even the House of Representatives will be on board until at least September.

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