Last week, we officially threw in the towel on any prospect for a 2010 COLA for Social Security, military/federal retired pay, SBP, and VA disability compensation recipients.
With inflation 2.3% in the hole through the first 10 months of the fiscal year, inflation would have to rise more than 4.6% in the next two months (the COLA is based on the July/August/September average) for there to be a 2010 COLA, and that’s not going to happen.
But this is the first time the nearly 50-year history of COLAs that there’s been negative inflation for the full year, and that sent us back to research how the COLA law deals with that event.
We know there won’t be a cut in retired pay, Social Security, etc. There just won't be a COLA.
But how about 2011? Does the "COLA clock" reset at zero, or do we start the new fiscal year in the hole by whatever negative number the CPI represents at the end of September?
The short answer is that it's a cumulative calculation, and we will, in fact, start FY2010 in the "COLA hole."
The law says the COLA is calculated based on CPI growth from the third quarter average to the next year's third quarter average. However, it specifies that the starting point for the calculation is the third quarter of the year prior to "the most recent adjustment..." So if there's no COLA in 2010, then the starting point for the 2011 COLA calculation still remains the third quarter of 2008.
So inflation will have to rise at least a couple of percentage points during the next fiscal year before the 2011 COLA clock will even start.