Reform of Social Security and Federal Pension Cost-of-living Adjustments

To protect the elderly from economic hardship due to the erosion of their real benefits, Congress indexed social security benefits to the cost of living as measured by the consumer price index (CPI). The pensions of railroad retirees, civil service workers, military personnel, and disabled coal miners are also included. These cost-of-living adjustments (COLAs) have protected the real benefits of recipients over a period of inflation in the past ten years. Attention has focused on reform of the COLAs. This legislative analysis examines the arguments for and against reducing the COLAs for social security and other federal retirement and disability programs, with particular attention to the administration proposal and the policy that was passed by the Senate in May 1985. The history of indexation of social security and other deferral programs is reviewed, and alternative proposals for altering COLAs will be discussed.