Cost-of-Living Adjustments

Introduction

Periodic adjustments in some form, generally referred to as cost-of-living adjustments (COLAs), are provided on most state and local government pensions. The purpose of a COLA is to offset, to some extent, the effect of inflation on retirement income. Considerable variation exists in the way COLAs are designed, and in many cases they are determined or affected by other factors, such as the actual rate of inflation or the financial condition of the plan. COLAs add both value and cost to a pension benefit. Public pension COLAs have received increased attention in recent years amid two competing factors: first, in the wake of the Great Recession, many states reduced benefits; and second, inflation spiked since 2021 and has remained higher than in recent preceding years. This brief presents a discussion about the purpose of COLAs, the different types of COLAs provided by government pension plans, and an overview of recent state changes to COLA provisions. 

Date published

May 2024

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

Download Issue Brief



 


Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.


 

What's New at NASRA: Commentary on Short Term Market Volatility and Public Pension Plans

NASRA recently published (April 16, 2025) a commentary on short term investment market volatility and public pensions. Although headlines may focus on daily or weekly market fluctuations, short-term declines should be viewed in the context of public pension funds’ long-term, disciplined approach to investing. Public pension funds are managed with a long-term focus. These funds are overseen by professional investors who follow disciplined strategies rather than reacting to daily market fluctuations. Their portfolios are highly diversified to reduce risk, and most use tools such as asset smoothing to limit the impact of market swings and help maintain stable funding over time.