Pacific edition, Saturday, August 29, 2009

Higher oil prices last year led to the largest annual cost-of-living adjustment (COLA) to federal entitlements since 1982. Good thing, too.

Lower oil prices will likely block any COLA this year for military retirees, federal civilian retirees, Social Security recipients, survivor benefit annuitants or disabled veterans.

The expected COLA “goose egg” will be the first since Congress began to adjust federal entitlements automatically using inflation rates as tracked by Bureau of Labor Statistics (BLS). This year the cost of goods and services nationwide has fallen. No inflation means no COLA. So what happened?

“Gas prices,” said Malik Crawford, an economist at BLS headquarters in Washington.

Each year, the federal COLA is based on the average change in the cost of a market basket of goods and services from the third quarter (July through September) one year to the third quarter of the next year. Through July, the cost of living for U.S. wage earners has fallen by 2.7 percent.

“That’s huge,” said Crawford.

Though fuel prices are just one item given “small official weight” in the entire market basket tracked by BLS, Crawford said, “they have an outrageous impact” on prices overall because transportation costs affect the cost of everything else needing transport to market.

“It’s not like gas prices are great” now for consumers, said Crawford. “They are almost back up to $3 (a gallon). But they are still a full dollar below where they were last year. To go from $4 to $3 is a 25 percent fall. You go 25 percent down (in gas prices) and you’re down 2.7 percent (overall). … That’s how the math plays out.”

If prices climb sharply in August and September is a COLA still possible? Unlikely, said Crawford. Price data are in already for most of August, he explained. Only a spectacular spike in September, which is highly unlikely, could trigger a COLA effective Dec. 1 and payable in January.

The COLA last December was 5.8 percent, the largest in nearly three decades. To get that, Crawford said, federal retirees and Social Security recipients “really lucked out … Gas prices peaked in the third quarter last year.”

If no COLA is paid to Social Security recipients, said Dan Moraski, spokesman for the Social Security Administration, the law would protect many of them from an increase in Medicare Part B premiums in January.

He said a “hold harmless” provision in the Medicare law would exempt about 75 percent from paying higher Part B premiums in any year in which Social Security pay is unchanged. The 25 percent not eligible for premium protection are individuals with modified adjusted gross incomes above $85,000 or couples with adjusted gross incomes of $170,000.

The premium protection would apply to Tricare for Life beneficiaries. But it would apply only to Part B base premiums and not any surcharge paid by Medicare users who delayed their enrollment in Part B beyond age 65.

Widows’ SBP win upheld

A federal appeals court has upheld a lower court’s ruling that the Defense Department unlawfully withheld from three military widows — and probably 400 others — full survivor benefit payments owed to them since Dec. 16, 2003.

On that date, the Veterans Benefits Act of 2003 became law and restored eligibility for VA Dependency and Indemnity Compensation (DIC) to military surviving spouses who remarry after age 57.

DIC, a tax exempt payment, is payable when a military member dies on active duty or dies in retirement from a service-connected condition. But a surviving spouse who draws DIC sees her Survivor Benefit Plan (SBP) reduced by an equal amount.

Patricia A. Sharp, Margaret M. Haverkamp and Iva Dean Rogers argued that the plain meaning of the 2003 statute exempted them and any other widow who remarries after age 57 from the SBP-DIC offset.

The appeals court agreed, calling the government’s arguments to the contrary “unconvincing,” including its contention that Congress would not have targeted so small a group of widows for SBP offset relief.

“Hallelujah,” said Sharp when told of the decision Wednesday. The remarried widow of an Army brigadier general said she is owed about $96,000 in forfeited SBP. “I have reinstated confidence in the government of the United States of America for making laws and abiding by them.”

Michael R. Franzinger, a lawyer for the widows, said up to 400 surviving spouses could see more than $35 million in SBP restored over 10 years if the government decides not to appeal either to all 12 judges on the Federal Circuit appeals court or to the U.S. Supreme Court.

Government attorneys had indicated in the lower court that if the ruling was upheld on appeal, Defense officials would work to find and pay all impacted widows rather than require them to apply for benefits owed.

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