What factors determine the 2026 federal employee pay raise and COLA decision?
Executive summary
The 2026 federal pay raise and the separate 2026 COLA for benefits are driven by different statutory formulas, executive choices and congressional action: the Federal Employee Pay Comparability Act (FEPCA) formula would have produced a 3.3% across‑the‑board GS raise plus an average 18.88% locality uplift in 2026 (per OPM/Federal Salary Council calculations), but the White House submitted an alternative plan proposing roughly a 1% across‑the‑board raise with locality frozen and selective 3.8% increases for some law‑enforcement roles [1] [2] [3]. The Social Security/retirement COLA is set by the CPI‑W change in Q3 and resulted in a 2.8% COLA for 2026 [4] [5].
1. How law, data and formula intersect to set the “statutory” federal raise
Under FEPCA, statutory pay adjustments are linked to the private‑sector Employment Cost Index (ECI); OPM’s Federal Salary Council calculated the FEPCA result for 2026 as a 3.3% base GS increase because the ECI rose 3.8% in the relevant period (less a half‑percentage point under the statute) [1]. That statutory mechanism also drives locality pay recommendations using BLS compensation surveys; OPM’s FEPCA‑driven locality estimate averaged an 18.88% increase — a figure that would have materially raised pay in higher‑cost metro areas [1] [6].
2. Presidential alternative pay plans and why they matter
Every year presidents submit an “alternative pay plan” that can supersede the FEPCA formula unless Congress acts otherwise. For 2026, the White House transmitted an alternative plan proposing a roughly 1% across‑the‑board increase for most civilians, freezing locality pay at 2025 levels and directing OPM to give selected law‑enforcement employees a 3.8% boost (matching the military increase) [3] [2]. Administrations justify such alternatives on budget priorities and fiscal restraint; critics say they undercut Congress’s statutory comparability goal [2] [7].
3. Congress’s role and the appropriations bottle‑neck
Congress can accept, modify or override presidential recommendations through the appropriations and legislative process. Several union‑backed bills and congressional proposals during 2025 sought larger raises (for example, proposals for a 4.3% package or a 3.3% base plus 1% locality), reflecting political pressure and competing priorities [8] [9]. But the White House alternative effectively constrains agency budgets unless Congress passes different language in the funding bills [10].
4. Locality pay: the unpredictable multiplier
Locality pay is calculated from BLS’s Annual National Compensation Survey and compares federal base pay to private‑sector wages in metro areas. Because locality adjustments can be large in high‑cost areas, freezing locality (as the White House proposed) substantially reduces total effective raises compared with the FEPCA outcome — OPM’s formula would have produced an average 18.88% locality increase in 2026 versus a freeze in the alternative plan [1] [6]. This is why many employees in expensive metros saw the alternative plan as far more significant than the headline 1% number [6].
5. The separate, mechanistic world of COLA for retirees and Social Security
COLAs for Social Security and many federal retirement benefits are calculated by the SSA using the percentage change in the CPI‑W from the third quarter year‑over‑year. That process produced a 2.8% COLA for 2026, to be applied to Social Security and SSI benefits [4] [5]. Debates persist about whether CPI‑W accurately reflects retirees’ costs and whether to switch indexes [11].
6. Competing narratives and stakeholder agendas
The administration framed its alternative as fiscal discipline and workforce reform [10]. Unions and some Democrats argue for parity with private‑sector wage trends, higher raises and protection of locality pay to preserve recruitment/retention; AFGE and other groups pushed bills for higher increases and criticized freezes [9] [8]. OPM and Federal Salary Council data underpin the statutory argument for larger raises but political choice determines the final outcome unless Congress intervenes [1] [2].
Limitations: available sources document the statutory FEPCA calculation, the White House alternative plan and the SSA COLA process, but do not provide the final appropriations action or a single consolidated end‑of‑year ruling in these documents — Congress could still change outcomes and “final” pay tables are typically issued by OPM in December [2] [1].