Frequently Asked Questions About the 2010 Cost-of-Living Adjustment

A.  A COLA is an automatic adjustment in benefits that occurs annually.  The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.  It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next.  If there is no increase, there is no COLA.
 
Q.  Who determines the CPI-W?

A.  The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor. By law, it is the official measure used by the Social Security Administration to calculate COLAs.

Q.  Why is there no COLA for 2010?

A.  By law, Social Security and Supplemental Security Income benefits increase automatically each year if there is an increase in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of the last year to the corresponding period of the current year.  This year there was no increase in the CPI-W from the third quarter of 2008 to the third quarter of 2009.

Q.  If there is no COLA, will my benefits stay the same?

A. If there is no COLA, your Social Security and SSI benefits will remain the same.

Q.  Will the maximum taxable earnings amount change in 2010?

A.  No.  Because there is no COLA, the Social Security Act prohibits an increase in the contribution and benefit base (Social Security’s maximum taxable earnings), which normally increases with increases in the national average wage index.  The maximum amount of earnings subject to the Social Security tax (taxable maximum) will remain $106,800.

Q.  Will the retirement earnings test exempt amounts change in 2010?

A.  No.  Because there is no COLA, the Social Security Act prohibits an increase in the retirement earnings test exempt amounts.  The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will remain $14,160.  (We deduct $1 from benefits for each $2 earned over $14,160.)  The earnings limit for people turning 66 in 2010 still will be $37,680.  (We deduct $1 from benefits for each $3 earned over $37,680 until the month the worker turns age 66.)  There is no limit on earnings for workers who are “full” retirement age or older for the entire year.

Q.  If Medicare premiums increase in 2010, will my Social Security benefit be reduced?

A.  The law contains a “hold harmless” provision that protects about 93 percent of Social Security beneficiaries from paying a higher Part B premium, in order to avoid reducing their net Social Security benefit.  Those not protected include higher income beneficiaries subject to an income-adjusted Part B premium and beneficiaries newly entitled to Part B in 2010.

If a beneficiary subject to IRMAA in the current year will not be subject to IRMAA in the next year, the “hold harmless” provision can apply.

There is no “hold harmless” provision for Medicare Parts C and D, meaning that beneficiaries must pay any higher premiums.

Q.  How long has Social Security had COLAs?

A.  Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975.  Before that, benefits were increased only when Congress enacted special legislation.